Profit From the ‘Broken’ Lululemon Athletica inc. (LULU) Stock

An image of a few devices next to a stock chart
Credit: Shutterstock photo

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Heads up, Lululemon Athletica inc. (NASDAQ: LULU ) lovers! The long-awaited resolution to its multi-month tug-of-war has finally arrived. And it appears bears are the victors. But fear not! I have a carefully crafted LULU option trade that is bound to deliver if the stock continues today's slide.

Since vaulting higher on better-than-expected earnings mid-December, Lululemon shares have been in digestion mode. Given the one-day 15% moonshot after earnings, it shouldn't be too surprising that LULU needed some backing and filling.

But after two months of churn, it's high time the queen of yoga-wear makes up her mind. Chart watchers will note the symmetrical triangle that has developed for LULU. It's a neutral pattern consisting of higher pivot lows and lower pivot highs.

Click to Enlarge Source: OptionsAnalytix

Today's 2% drop is breaching the lower trendline of the pattern.

And that means now is the time to strike for bears. The lower end of the triangle pattern near $63.50 is a logical first target.

If sellers press their advantage, a potential gap-fill could be in the offing. But let's not get ahead of ourselves. Today's suggested trade merely needs LULU to sit below $65 by March expiration.

Stretch for Profits in LULU Stock

To capitalize on additional selling, consider buying the 17 March $67.50/$65 put spread for $1.40. The put vertical spread consists of buying to open the $67.50 put while selling to open the $65 put.

By purchasing a spread instead of buying a put option outright, we reduce the cost, and therefore risk, of the trade.

The max loss is limited to the initial $1.40 and will be forfeited if Lululemon stock rises above $67.50 by expiration. The max gain is restricted to the distance between strikes minus the net debit, or $1.10, and will be captured if the stock sits below $65 at expiration.

At the time of this writing, Tyler Craig had no positions on any of the aforementioned securities.

More From InvestorPlace

The post Profit From the 'Broken' Lululemon Athletica inc. (LULU) Stock appeared first on InvestorPlace .

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

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

In This Story


Other Topics


Latest Markets Videos


    InvestorPlace is one of America’s largest, longest-standing independent financial research firms. Started over 40 years ago by a business visionary named Tom Phillips, we publish detailed research and recommendations for self-directed investors, financial advisors and money managers.

    Learn More