lululemon athletica (NASDAQ: LULU - option chain) shares rose Thursday after the company reported a second-quarter profit of $9.24 million, or 13 cents per share, on revenue of $97.72 million. Analysts had forecast a profit of 10 cents per share on revenue of $88.20 million. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on LULU.
LULU opened Thursday at $22.49. So far the stock has hit a low of $21.97 and a high of $23.00. As of 11:25, LULU is trading at $22.28 up 0.67 (3.1%). The chart for LULU looks bullish.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $15 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in three and a half months as long as LULU is above $15 at December expiration. LULU would have to fall by more than 32% before we would start to lose money.
LULU has not been below $15 since July and has shown support around $18 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LULU.
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