Options traders flock to yoga kingpin

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Lululemon (LULU) launched into the ether today, and options traders are clamoring for a piece of the action.

Over 95,000 contracts changed hands in the yoga kingpin — the highest total in a year, and more than 7 times the average volume in the last month.

Short-term weekly calls expiring today led the activity, in particular the 1-June 123 calls. They traded for $0.08 to $0.14 early in the session when LULU shares were below $116. Then premiums hit $0.25 as the stock climbed toward $120, followed by prints for $0.45 as the equity price shot past $122. They’re now worth more than $1 as LULU challenges $124. More than 6,000 contracts have traded so far.

That kind of leverage results from the fact calls fix the price where a security can be purchased. It can work great when shares move higher, but if they don’t the premiums can dwindle to zero. See our Knowledge Center for more.

A turnaround is behind LULU’s surge, as a store redesign drew back foot traffic and e-commerce sales kept mushrooming. Management also said the improvement was continuing in the present quarter. They’ve even had success drawing men as customers. Those considerations lifted the stock 17 percent, its biggest one-day gain since October 2008.

Lululemon (LULU) chart, showing historical options volumes.
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David Russell is VP of Market Intelligence at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.