It's finally starting to look like Lululemon's rally may no longer be impervious to market conditions that have hampered similar retailers
After a wild run higher that saw the athleisure darling skyrocket more than 100% off the lows, the stock is pulling back ahead of Thursday's scheduled earnings report, and sentiment in the options market is starting to turn sour.
That implied move is signaling that the options market is actually pointing to less post-earnings volatility than Lululemon has produced in the past. Over the last eight quarters, the stock has moved an average of 9.5% after it reports.
Instead of continuing to stretch their gains even higher after this report, options traders are betting investors who have ridden this bounce off the bottom will be willing to take profits.
Buyers of the weekly 300-strike puts that expire after the bell on Friday paid an average of $3.75 per contract, placing their breakeven around $296.25 on Lululemon's underlying stock price, or just about 8.5% below where it closed Wednesday's session.
That's slightly rich to the move that Lululemon is implying, but as Khouw would point out, there is a chance that at least some of these bets are hedges, rather than outright bearish speculation.
"One of the reasons [these traders] might be doing this? Lulu has been on an incredible tear," said Khouw. "So, maybe people are just trying to book some of the gains in Lulu they've seen so far."
Lululemon was 3% lower in Thursday's session.