Resurrection Trade in LULU

[Steven Place]

Oil is below 80/barrel.

What are you going to do with all that cash you’ve saved?

BUY YOGA PANTS!

LULU is in a multimonth base and has been dead money for quite some time. There’s a hint of relative strength considering it didn’t fall apart in October with the rest of the market.

All the major moving averages aside from the 200 day are congregating right around price, and price has been in a fairly tight range for two weeks.

Nearly 25% of the shares float are short (that may be less as Einhorn just closed his short), and I have a feeling there can be a squeeze above 42.50.

I am ANTICIPATING the breakout here, which gives me lower odds of success but higher reward if it works.

Buy to Open LULU Dec 40 calls @3.50 or lower.

Stop 39.84

Take half off at 42.

[Steven Place]

LULU currently trading at 42.78

Sell half LLU Dec 40 calls at 4.30

[Steven Place]

Great move, the stock is now trading above 45. This is a big level of resistance from the earnings day high so I will take some more risk off the table.

This is a “spreading” technique where we convert the long call into a long call spread.

Sell to open LULU Dec 47.50 call for 2.00

[Steven Place]

LULU reports earnings tomorrow in the morning so if you’re stillin the stock and want to preserve your profits, either bail now or continue to reduce your position size.

Sell to close LULU 40 call @ 7.60

Buy to close LULU 47.50 call @ 2.17

All in all it’s about a 61% return on max risk, so a pretty good trade all in all.

[Author]

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