from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up


Posts Tagged ‘Lulu Lemon’

Lululemon (LULU) Stock Price Surges Following Earnings

Sunday, June 24th, 2018

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

I thought I might share with you the first paragraph of this week’s report to our paying subscribers – “Bad Week for the Market (Down 1%), But Our Composite Portfolio Average Gains 5% Thanks to Blow-Out Week for Wiley Wolf (up 47%): A week ago, we were celebrating a 26.5% gain in Wiley Wolf when FB gained 3.6%, but that was nothing compared to this week’s colossal 47.6% gain on a 3.0% rise in the stock.  In two weeks, the portfolio has moved from a value of $4,472 to today’s $8,353.  The 10K Strategy can deliver extraordinary results when you are leaning to the bullish side and the underlying cooperates by going up (which you expect it to do or you wouldn’t have selected that stock in the first place).  Positive results from this strategy also appeared this week in Rising Tide where the portfolio gained 10% while the underlying MA rose 1%.”

I hope you enjoy this week’s trading idea.


Lululemon (LULU) Stock Price Surges Following Earnings

LULU rose to record highs earlier this month following its earnings report.  Several analysts think the stock can go a lot higher, here are two of them – Was Lululemon Athletica Inc’s Earnings Growth Better Than The Industry’s? and 7 Debt-Free Companies Doing Big Stock Buybacks

Lululemon Athletica’s stock price gapped higher following the earnings announcement, reaching a high just shy of the $130 handle.  Momentum has slowed somewhat, yet the technicals remain supportive as the stock trades within a rising up channel and has held above it’s 20-day moving average.

LULU Chart June 2018

LULU Chart June 2018

If you agree there’s further upside ahead for LULU, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.

Buy To Open LULU 27JUL18 120 Puts (LULU180727P120)
Sell To Open LULU 27JUL18 124 Puts (LULU180727P124) for a credit of $1.48 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when LULU was trading near $124.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers).  Each contract would then yield $145.50 and your broker would charge a $400 maintenance fee, making your investment $254.50 ($400 – $145.50).  If LULU closes at any price above $124 on July 27, both options would expire worthless, and your return on the spread would be 57% (650% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 21, 2018

IBD Underlying Updates June 21, 2018

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,


Update On LULU Trades

Friday, June 7th, 2013

Yesterday I sent out suggested trades for LULU’s Monday earnings announcement.  The stock has rallied over $2.50 since then, and we have raised our strike prices by 2 ½ and placed the following trades today:


June 7, 2013 Trade Alert –  PEA Picker  Portfolio – limit orders

LULU announces earnings after the close on Monday and we will get these orders in today, committing a little over half our money:


BTO (buy to open) 10 LULU Jul-13 82.5 calls (LULU130720C82.5)

STO (sell to open) 10 LULU Jun2-13 80 calls (LULU130607C80) for a debit limit of $.25  (buying a diagonal)


BTO 5 LULU Jul-13 85 calls (LULU130720C85)

STO 5 LULU Jun2-13 85 calls (LULU130607C85) for a debit limit of $1.37  (buying a calendar)


Happy trading.





How to Play the Lululemon Athletica Earnings Announcement

Thursday, June 6th, 2013

This article was submitted to Seeking Alpha but was declined because it focused on options.  I thought you might like to see it.

This quarter’s earnings season is winding down.  Only one company with weekly options available, Lululemon Athletica (LULU) is due to report next week.  (I restrict my analysis to companies with weekly options because they are the most actively-traded and popular, and I often employ the weekly options in my trading.)  LULU reports on Monday, June 10 after the closing bell.

LULU is a high-end retailer of fitness apparel including fitness pants, shorts, tops, and jackets for healthy lifestyle activities, such as yoga, running, and general fitness. Based in Vancouver, British Columbia, LULU has 135 stores in the United States and 51 stores in Canada, and also has extensive wholesale business through health and fitness clubs.

Not only are its clothes high-end, so is its p/e ratio, 42.47, which compares to Nike’s (NKE) 24.11.  This lofty evaluation is the likely reason for the large number of shares sold short (19.8% of the float).

Looking forward to next week’s earnings announcement, let’s check out what has happened over the past four quarters, with the stock price change from the close on the day before the announcement until the closing price on Friday (when the weekly options expire):   

LULU Earnings Chart

LULU Earnings Chart

LULU has not done very well after earnings announcements considering they beat estimates every time.  In half the quarters the stock fell after they topped estimates. The stock has tended to move considerably after an announcement (an average of 7%). Next week’s option prices are priced for a 7% move, exactly the average change for the last four quarters.

Over the last several months, I have been testing the proposition that the level of expectations prior to an earnings announcement is a better indicator of what the stock price will do than the actual earnings themselves. I call it the Expectation Model.   Basically, I examine recent stock price activity, estimates vs. whisper numbers, past post-earnings price changes vs. results, current RSI levels, and come up with a measure of whether expectations are unusually high or low. If expectations are usually high, there is an excellent chance that the stock will be flat or fall after the announcement, regardless of how much the company might surpass estimates, and conversely, the stock is more likely to move higher when expectations are low, even if estimates are merely met.  (Unusually low expectations are generally less predictive of higher post-announcement prices, however – unusually high expectations more reliably predict lower prices after the announcement). I have had some serious success with this model, including 12 consecutive winning pre-earnings calls (average gain about 18%) without a loss – see results and update. Over half of the earnings plays were published in Seeking Alpha articles published before the announcement – see some examples here and here.

A bullish case for the company cited getting its yoga pant line back after recalling it for being too transparent – Lululemon Poised To Pop After Ironing Out Pants Issue. A more balanced analysis was made by Bill Maurer –  Will Lululemon Decline After Earnings?  I strongly encourage you to read this article as he reported just about exactly what I would have said so there is no reason to repeat it all here.

The only thing I would add to Bill Maurer’s article is my concern of the level of recent insider and institutional sales of stock.  While Yahoo reports that insiders sold 579,758 (4.2% of their holdings) over the past six months, if you add up the individual sales reported that number becomes more than double that amount.  Over the last quarter, institutions disposed of over 7 million shares (4.9%) of their holdings.

So how does LULU stack up with the Expectation Model?  Bottom line, expectations seems to be a little high leading up to next week’s announcement.  The stock has had a huge run-up recently, rising about 25% over the past 10 weeks and hitting a new high of $82.48 last week before backing off about $4 since then.  Whisper numbers are higher ($.32) than estimates ($.30). Recent institutional sales or purchases are part of the model and have been a fairly reliable indicator as to how the price might move after the announcement.  We can expect that a great deal of research and analysis went into their decision (in this case, to sell shares) and it is usually a good idea to follow along with them rather than guess they are wrong.

High expectations, a record of lower stock prices after earnings, and what I believe is a currently-expensive stock price, all lead me to believe that there is an excellent chance that LULU will trade lower next week and that anyone who is thinking of buying shares should wait until after the announcement and most likely get a better price at that time.  This is just what I said about Costco (COST) two weeks ago (a company I love and am long), and even though it bested estimates, it is trading about $5 lower after announcing.

I don’t feel as strongly that LULU will drop after the announcement as I did with COST, however (mostly due to the stock falling $4 in the last week), so I will hedge my bet.  With LULU trading at $79, I will buy 10 July-13 80 calls and sell 10 Jun2-13 78.5 calls (incurring a maintenance requirement of $2500) for about even money, and buy 5 July-13 – Jun2-13 82.5 call calendar spreads for about $1.25 (just in case I am wrong and the stock moves higher).  My total investment will be about $3200.

Here is the risk profile graph for those positions assuming that IV of the July option will fall from 40 to 30 after the announcement:

LULU Risk Profile Graph

LULU Risk Profile Graph

These positions could make an average gain of about 20% if the stock does not fluctuate too much.  It looks like a gain of some sort should come about if the stock fluctuates by less than 5% on the upside or about 7% on the downside.  This is an investment you should only make with money that you can truly afford to lose.  I plan to do it, and expect it to be my 13th consecutive winning earnings trade.

Making 36%

Making 36% — A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

Success Stories

I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

~ John Collins