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Thursday, August 18, 2022


Bearish Play In Lululemon Puts Suggests Rally May Sour

Today’s tickers: LULU, YHOO, PCS & COF

LULU – Lululemon Athletica, Inc. – Shares in the maker of high-end athletic apparel jumped 7.5% to $50.55 today after the stock was added to the Conviction Buy List at Goldman Sachs, but one options trade on LULU seems to be saying the price of the underlying may head downward, dog. It looks like the buyer of a 1,000-lot January $43.75/$48.75 bear put spread on Lululemon paid a net premium of $1.24 per contract to position for potential double-digit declines in the share price through expiration later in the month. The spread prepares the investor to profit should LULU’s shares drop at least 6.0% to breach the effective breakeven price of $47.51, with maximum potential profits of $3.76 per contract ripe for harvest in the event the stock declines 13.5% to settle below $43.75 at expiration day. Shares in the apparel retailer dipped below $43.75 as recently as December 15.

YHOO – Yahoo!, Inc. – A massive transaction in Yahoo! options signals confidence in the Internet-media giant by at least one large player following the company’s announcement it has appointed PayPal President, Scott Thompson, to serve as its new CEO. The decision to appoint Thompson did not help shares today, however, with the stock currently down 2.7% at $15.84 as of 12:25 PM in New York. The largest single trade on YHOO today, a one-by-two ratio call spread, suggests the price of the underlying may post limited gains during the first seven months of 2012. It looks like the strategist purchased 20,000 calls at the July $16 strike for a premium of $1.92 each, and sold 40,000 calls up at the July $19 strike at a premium of $0.67 apiece. Selling twice as many $19 strike calls significantly reduces net premium paid on the spread to $0.59 per contract. Profits are available on the position if shares in Yahoo! rally 4.7% to top the effective breakeven price of $16.59. The ratio spread may result in maximum possible gains of $2.41 per contract should the price of the underlying jump 20.0% to settle at $19.00 at expiration day in July. It looks like a number of other ratio call spreads have taken shape on Yahoo!, Inc. in the hours since the initial July $16/$19 spread was established. Options volume on YHOO is greater than 350,000 contracts in early-afternoon trade.

PCS – MetroPCS Communications, Inc. – The wireless communications provider’s shares lost 3.8% in the first half of the session to trade at $9.03, reversing sharp gains enjoyed in the first trading session of 2012. Activity in MetroPCS options today suggests one player is positioning to benefit from further pain in the next few weeks. More than 7,000 in-the-money put options changed hands at the Jan. $10 strike against paltry previously existing open interest of just 230 contracts. The majority of the put options were purchased by one investor in a block of 4,475 contracts within minutes of the opening bell for a premium of $1.20 apiece. Bearish put buying on MetroPCS may pay off for the trader come January expiration should the price of the underlying fall another 2.5% to breach the effective breakeven price of $8.80. Shares in the name ended 2011 below $8.80, wrapping up the calendar at a 54.0% discount to its May 19, 2011, 52-week high of $18.79.

COF – Capital One Financial Corp. – The financial services provider popped up on our scanners this morning due to near-term bullish activity in its options. Though off their highs of the session, shares in Capital One remain in the green, up 1.60% at $44.45 as of 1:05 PM on the East Coast. One investor positioning for COF’s shares to extend gains purchased the Jan. $44/$46 bull call spread roughly 3,400 times at a net premium of $0.75 per contract. The trader may profit at expiration in the event that Capital One’s shares exceed the effective breakeven price of $44.75. Shares in the name must rally another 3.5% to top $46.00 at expiration day in order for the investor to walk away with maximum potential profits of $1.25 per contract. Investors will have the opportunity to trade January ’20 2012 expiry call options in one final session following COF’s fourth-quarter earnings release after the final bell on January 19.


Caitlin Duffy

Equity Options Analyst


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