Is Lululemon ready to sell off?

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Lululemon Athletic is hitting resistance at a key level, and the bears are looking for a quick selloff.

optionMONSTER's Depth Charge monitoring program detected the purchase of some 5,500 Weekly 68.50 puts expiring this Friday for an average premium of $2.53. A similar number of the Weekly 64 puts was sold at the same time for $0.69, resulting in a net cost of $1.84. Volume was more than 12 times open interest at each strike, indicating that a new vertical spread was initiated.

The position will expand to $4.50 if the yoga-apparel retailer closes at $64 or lower on expiration three days from now--implying profit of 145 percent move from the shares declining less than 7 percent. (See our Education section for more on the potential leverage of options.)

LULU is down 1.06 percent to $68.39 in midday trading. It's been trading in a range for almost two years but now seems to be consolidating below its 200-day moving average. That could make some chart watchers think that it's ready to start trending lower. Guidance was below consensus the last time results came out on Sept. 12, causing the shares to gap lower.

Total option volume in LULU is almost triple the daily average so far, according to the Depth Charge. Overall puts outnumber calls by more than 3 to 1.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: LULU

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