Lululemon is about to jump.
That's at least according to the options market, which is implying a 10% move in either direction for shares of the athletic apparel retailer following its upcoming earnings report.
Options traders generally feel bullish heading into the earnings report, scheduled for Thursday afternoon, says Mike Khouw, co-founder and chief strategist at Optimize Advisors.
"Some of the activity we saw was suggesting that some options traders believed that that 10% move will be to the upside," he said Wednesday on CNBC's "Options Action."
One trade that caught Khouw's eye was a purchase of the $180 calls expiring on Friday. A mystery trader paid about $7 for just over 400 of those calls, financing that trade by selling $3 worth of $200 calls expiring at the end of the month.
"All in, they were spending just under $4 to buy that spread," Khouw said. "The idea here is that the near-dated calls will appreciate if the stock pops."
It's also a bet that the implied volatility in the longer-dated monthly calls — which is currently around 64% versus its average of 30% — will drop dramatically, the longtime strategist said.
"That's basically how they're going to expect to make that bullish bet and take advantage of falling implied volatility after [Lululemon] announce[s] results," he said.
For other fans of this athleisure stock, like Private Advisor Group's Guy Adami, this trade makes sense.
"People will knock it on valuation, ... but look at the EPS growth they have. They absolutely have it," Adami said in the same segment. "Operating margins continue to hang in there. I think you've got to remain bullish in Lululemon."
Lululemon shares were up more than 3% Thursday morning.
