Lululemon Athletica Inc. (LULU) 10/28/09 PriceWatch Alert At $23.60 Break Even

Posted: Wednesday, October 28, 2009 8:05 AM EDT
By: Market Intelligence Center Staff

Lululemon Athletica Inc. (NasdaqNM: LULU) closed yesterday at $27.90. So far the stock has hit a 52-week low of $4.33 and 52-week high of $28.86. Lululemon Athletica stock has been showing support around 25.63 and resistance in the 29.99 range. Technical indicators for the stock are Bullish. LULU appears on the Investors Observer Stocks In The News list. LULU raised its third quarter guidance on Tuesday and said it sees same-store sales rising in the quarter instead of remaining flat as previously expected. For a hedged play on this stock, look at a Jan '10 25 covered call (QLN AE) for a net debit in the $23.60 area. That is also the break even stock price for this trade. This covered call has an 80 day duration, provides 15.41% downside protection and a 5.93% assigned return rate for a 27.07% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the LULU Jan '11 10 Call (XKQ AB) and selling the Jan '10 25 call (QLN AE) for a $14.30 debit. The trade has an 80 day life and would provide 12.90% downside protection and a 4.90% assigned return rate for a 22.00% annualized return rate (for comparison purposes only). Lululemon Athletica does not pay dividends at this time. [WBA-Seven Summits Research]