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Wednesday, December 6, 2023

Pre-Earnings Report Posturing On The Rise In Lululemon Options

Today’s tickers: LULU, ARIA & LNKD

LULU – Lululemon Athletic, Inc. – Lululemon’s shares are in rally-mode today, ahead of the athletic apparel retailer’s fourth-quarter earnings report Thursday morning. The stock trades higher by 1.45% to stand at $73.94 in early-afternoon trade, and it looks like some traders are using LULU options to taking pre-earnings report positions that benefit from further upside moves in the price of the underlying. One strategist appears to have initiated a bullish butterfly spread, buying around 3,000 calls at the April $75 and $85 strikes, and selling 6,000 calls at the April $80 strike, all for a net premium outlay of $0.92 per contract. The parameters of the spread indicate potential losses, and potential gains, are limited; maximum possible losses are capped at $0.92 per contract. The trader may profit at expiration in the event that Lululemon’s shares rally 2.7% to surpass the effective breakeven price of $75.92, with maximum possible profits of $4.08 per contract available given an 8.2% move higher in the shares to $80.00. It looks like the butterfly spread is not the only bullish strategy calling for LULU’s shares to head higher. Last Friday, a large block of 12,551 April $80 strike calls were purchased for a premium of $1.60 each. While both transactions look for Lululemon’s shares to rally to fresh record highs, one earns maximum possible gains if shares settle at $80.00, while the other looks for shares to rally above $81.60 by expiration next month. More than 33,500 option contracts have changed hands on LULU just before 12:30 p.m. in New York.

ARIA – ARIAD Pharmaceuticals, Inc. – Options on biotechnology company, ARIAD Pharmaceuticals, are more active than usual today following Tuesday’s reported 13-to-1 ruling by the FDA’s Oncologic Drugs Advisory Committee against the use ridaforolimus. The Committee’s decision regarding ARIAD and Merck’s investigational medicine for the treatment of metastatic soft-tissue or bone sarcomas will be taken into consideration when the FDA makes its decision on the New Drug Application (NDA) for the agent, according to a joint press release issued by the drug makers. ARIAD’s shares are a shade off their February 6th, 52-week high of $15.98 today, up 3.9% at $15.64 just before 1:00 p.m. in New York. The stock faltered after-hours on the news, but one options trade initiated in the first 20 minutes of the session suggests the price of the underlying is not likely to collapse any time soon. It looks like one strategist sold 5,000 puts at the May $11 strike for a premium of $0.15 per contract. The trader walks away with the full amount of premium in hand as long as shares in ARIAD exceed $11.00 at May expiration. But, should some piece of news or the Company’s May 3rd first-quarter earnings report send the stock spiraling down below $11.00, the put seller could wind up having 500,000 shares of the underlying put to him or her at an effective price of $10.85 a share at expiration. Shares in the name last traded below $11.00 back in mid-December, and are up nearly 30.0% year-to-date.

LNKD – LinkedIn Corp. – Shares in the largest networking site for professionals jumped as much as 8.9% to $100.00, the highest since August, after the stock was raised to ‘Buy’ from ‘Neutral’ at Goldman Sachs. Options traders anticipating continued gains in the price of the underlying during the next couple of trading session at least snapped up weekly call options this morning. Weekly calls at the $100 strike are most active, with more than 3,000 contracts in play against open interest of 660 positions, as of 11:10 a.m. in New York. It appears the majority of the calls were purchased for an average premium of $1.64 apiece, thus preparing buyers of the options to profit at expiration should shares settle above the average breakeven price of $101.64. Traders exchanged roughly 2,000 calls at the higher Mar. ’23 $105 strike, where trading patterns reveal active buyers and sellers of the options at a volume-weighted average price of $0.61 each. Finally, strategists shelled out an average premium of $0.26 per contract to buy around 400 far out-of-the-money $110 strike calls today. At expiration traders long the $110 calls make money as long as the price of LinkedIn’s shares surge another 10.0% to trade above $110.26. Overall options volume of approximately 28,800 contracts currently in play on the professional-networking site is already well above the stock’s 90-day average volume of 23,105 contracts in the first half of the session. More than two call options are changing hands on LinkedIn for each single put option traded this morning.


Caitlin Duffy

Equity Options Analyst

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