Lululemon (NASDAQ:LULU) shares are beckoning to breakout traders. And with one of the best trends on the Street and momentum to boot, the invitations are very likely to be accepted. Today, we’ll chronicle the bullish pattern in LULU stock and build a trade idea to capitalize.
The stock market’s bullish undertones were confirmed by yesterday’s rousing recovery. What began as a modest down gap rapidly morphed into a squeeze higher as buyers donned their rally caps. The price action in Netflix (NASDAQ:NFLX) is perhaps the best illustration of the turnabout. It rallied close to 10% after gapping down hard on disappointing earnings. If that type of behavior doesn’t confirm that dip buyers are alive and well in momentum stocks, then I don’t know what does.
This price action keeps me optimistic for further gains to come and has me liking LULU stock’s chances for seeing upside follow-through on a breakout.
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Ever since LULU delivered a scorching ascension on earnings, its share price has been consolidating. I find it incredibly bullish that the stock was able to pole vault as high as it did and not give back an inch of the gains since. That means buyers have gobbled up every little dip and sellers have been altogether unable to knock the stock from its lofty perch.
With yesterday’s jump back to overhead resistance it appears the time for an upside breakout for LULU stock is nigh. And with earnings looming over a month out that leaves plenty of time for a pre-earnings ramp into the numbers.
LULU Stock Call Spreads
Implied volatility remains subdued for LULU stock options. At 20%, the IV Rank is nestled at the lower-end of its one-year range. That means we can buy calls or call spreads on the cheap. Additionally, the implied volatility should head higher in the coming weeks in anticipation of earnings.
Buy the Sep $130/$140 bull call spread for $4 or better. The initial debit represents the max loss and will be forfeited if LULU sits below $130 at expiration. The max gain is $6 and simply needs the stock to rise above $140 to capture.
As of this writing, Tyler Craig held bullish options positions in LULU. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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