We’re Bending Over Backwards to Sell a lululemon Put
It’s hard to resist playing popular stocks that have been beaten up badly, even when they aren’t yet ‘cheap’. Yoga wear maker lululemon (LULU) rarely gets to bargain levels. It has pulled back substantially from its peak of $82.50, though.
The stock was quoted at $58.20 as of 10:30 this morning.
I’m being a bit more flexible than usual in selling one Jan. 2015 $55 put contract for $7.20 per share. We’re committing to buy 100 LULU for a net price of $47.80 if the option is exercised.
That break-even price comes from taking $55 (the strike price) minus $7.20 (the premium collected) = $47.80 per share. The stock hasn’t been that low since about one year ago. Despite dealing with a slew of problems in 2013, lululemon’s EPS are higher today than ever before.
Our maximum gain would be to keep $720 if we see the option expire worthless on January 17, 2015. Our worst-case scenario would see us forced to buy 100 LULU for $4,780 if exercised.
See details of this trade along with all our previously closed-out and open option positions here.
