How to Buy Lululemon Stock Without Sweating It

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LULU stock - How to Buy Lululemon Stock Without Sweating It

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Conditions are getting a bit stretched in Lululemon (NASDAQ:LULU) shares these days. But with the flexibility and risk control afforded by a modified butterfly position, LULU stock is still a name to try on with confidence. Let me explain.

I’ve said it before and it remains as true today as it did in days past. In a world that favors growth over size, LULU stock is continuing to have a breakout year off and on the price chart. In fact, since last writing about LULU in late July, shares are up nearly 27% — nearly seven times the S&P 500’s still very respectable gain of around 4%.

A good chunk of the athleisure outfit’s healthy price performance has been the company’s standout Q2 results at the end of August. Lululemon shares spiked more than 13% to record highs after topping the Street’s earnings and sales forecasts and delivering above-views full-year guidance.

Bottom line and top line, LULU’s women’s business remains hot — and its more recent move into men’s performance clothing continues to pack heat as well.

LULU Stock Monthly Price Chart

Source: Charts by TradingView

To be fair, despite being bullish on LULU stock, a review of the monthly chart does emphasize a momentum crowd that could be getting a bit ahead of itself.

LULU stock is outside the upper Bollinger Band for a sixth straight move after breaking out of a massive corrective base. That’s cause for concern that a technically stretched situation could snap back at today’s bullish investors in the form of a healthy corrective move.

When that day does arrive, I’d most likely be a very interested buyer of LULU stock. Still, trying to time a momentum name like Lululemon and possibly being left out on the sidelines can be quite costly. The truth is the market isn’t a level playing field, and most stocks of this caliber make their biggest gains when value investors are moaning from the bench.

LULU Stock Bullish Options Strategy

One way to ride a stretched situation to even more stretchy profits, while not having to sweat nearly as much should a healthy correction suddenly overtake LULU stock, remains a modified bullish butterfly strategy.

Our last play of this type netted a return of nearly 50%, or $1.65, and sported much larger returns prior to expiration. This time and with shares of Lululemon at $161.24 the Oct $165/$172.50/$175 call butterfly for $1.55 is favored.

This combination keeps risk to less than 1% of LULU stock in the event of a correction, yet allows for a max payout of $5.95, or 383%, if shares land squarely on $172.50 at expiration. The small and controlled debit allows for bullish investors to be ready to buy on weakness if Lululemon shares falter. But if momentum continues to dazzle and even top our wildest dreams, this asymmetrical bullish configuration is still able to take home a profit of $3.45 above $172.50.

The real risk with this spread is if LULU simply fails to inspire bulls or bears into sufficient motion.

If shares remain in this vicinity without correcting, I personally wouldn’t be a buyer of LULU stock. And without moving marginally higher into the meat of the butterfly, the trader would also be out the token debit. To steal a line from athletics giant Nike (NYSE:NKE), investors will need to decide if the risk is enough to “Just Do It!” but I certainly see this strategy as one that’s still worth trying on.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/how-to-buy-lululemon-stock-without-sweating-it/.

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