Lululemon Is on a Losing Streak, But Options Traders Are Betting on a Turnaround

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Lululemon reports earnings after the bell on Thursday, and options traders are feeling bullish despite the stock's recent weakness.

After breaking out to huge gains over the last month, Lululemon is suddenly down more than 3% in the last week, but traders see the potential for a strong earnings report to help erase the recent weakness.

"Calls outpaced puts about 1.5 times to 1, and if you take a look at the at-the-money straddle, you see that those are implying about an 8% move in either direction between now and Friday, compared with only a 5% move on average," Bonawyn Eison, XP Investments managing director of equity derivatives, said Wednesday on CNBC's "Fast Money."

Despite the elevated implied move in Lululemon, Wednesday's biggest options trade in the stock was looking for a more muted reaction out of earnings.

"The trade that really stuck out to me was a seller of 1,000 of the [Dec. 11 weekly] 400 calls at about $4.35," said Eison. "The breakeven is going to be at about $404.35, or 112% of current spot."

As a seller of upside calls, this trader will make money by collection premium if Lululemon drops following its earnings report or rises by anything less than 12% into Friday's close.

"This has been a darling of the stay-at-home trade, again, just betting that this move will probably be more in line with what we traditionally see around earnings, as opposed to the implied options move," said Eison.

Lululemon was trading slightly higher in Thursday's session.


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