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Thursday, December 7, 2023

Sizable Put Spread Takes Shape In Lululemon Ahead Of Earnings


Today’s tickers: LULU, MFRM & SU

LULU – Lululemon Athletica, Inc. – Options on the athletic apparel retailer are changing hands at a feverish pace today ahead of Lululemon’s first-quarter earnings report prior to the opening bell on Thursday morning. Shares in the provider of high-end yoga pants and stylish gym accessories are off their intraday peak, but continue to trade 1.5% higher on the session at $71.76 as of 1:00 p.m. in New York. Roughly half of the 43,000 contracts in play on LULU in the first half of the session are part of a large spread in the June expiry. One strategist established a bear put spread ahead of the earnings report, perhaps to protect a long position in the underlying shares against adverse moves in the price of the underlying. Most of the 10,000 lot June $60/$67.5 put spread traded on the Amex and was purchased for a premium of $1.30 per contract. The spread establishes downside protection beneath a breakeven share price of $66.20 and extends down to $60.00. Shares in LULU would need to plunge 16.4% after earnings in order for the stock breach the $60.00 level. Lululemon’s shares are up nearly 50.0% year-to-date and last traded below $60.00 back on January 20, 2012.

MFRM – Mattress Firm, Inc. – Bullish bets in Mattress Firm options cropped up today despite the near 25.0% post-earnings plunge in shares of the mattress retailer to an intraday low of $26.70. Shares in Mattress Firm dropped on lower-than-anticipated first-quarter revenue and a reduced sales forecast for the second quarter, but some traders appear to be positioning for MFRM’s shares to recoup losses during the second half of the year. Near-term bulls picked up around 120 calls at the June $30 strike for an average premium of $1.11 apiece, while longer-dated Oct. $30 strike calls were purchased some 150 times at an average premium of $3.38 each. Call buyers in the front month stand ready to profit should the stock rebound above the average breakeven price of $31.11 by expiration next week. Traders long the Oct. $30 strike call make money if Mattress Firm’s shares rally 13.7% over the current price of $29.36 to exceed $33.38 by October expiration. MFRM shareholders are hurting today, but not quite as much as investors in luxury mattress provider, Tempur-Pedic (TPX). TPX shares halved in value after the company lowered its full-year earnings and sales forecasts. The company is scheduled to report second-quarter results after the final bell on July 26th.

SU – Suncor Energy, Inc. – Near-term bullish positioning in Suncor Energy, Inc. options is on the rise today, with shares in the Calgary, Alberta-based energy company up better than 3.8% at $28.32 as of 12:00 p.m. ET. Options on Suncor are most active at the Jun. $29 strike where more than 9,400 calls changed hands against open interest of 3,993 contracts. It looks like the majority of the calls were purchased for an average premium of $0.35 apiece this morning, thus positioning buyers to profit should SU’s shares extend gains in the near term. Traders long the calls make money should shares rally another 3.6% to surpass the average breakeven price of $29.35 by June expiration. Strategists snapping up calls at the Jun. $29 strike on Tuesday paid an average premium of $0.19 apiece for approximately 1,400 of the contracts. The value of those positions has more than doubled overnight, with premium on the calls up at $0.48 each as of midday in New York.


Caitlin Duffy

Equity Options Analyst

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