Will Bullish Attitude Towards Lululemon Athletica inc. (LULU) Be Worth the Risk?

Lululemon Athletica inc. (NASDAQ:LULU) announced today that its financial results for the second quarter will be made available on Thursday, September 11. The results will be discussed during a conference call at 9:00 Eastern Time. Keeneonthemarket.com Strategist James Ramelli keeps an eye on the company’s stock, among other picks, and he waits for a bump in the price, as he said during an interview on Bloomberg TV.

The disclosure of quarter two numbers is an expected event because Lululemon Athletica inc. (NASDAQ:LULU) has been an underperformer for almost a year, sliding gently to about $38.9 per share, and the company’s stock price fluctuates significantly with respect to the numbers presented at the quarter’s end.

“So, Lulu has been one of the worst performing stocks of the year. It’s down over 34%, however if we look at how it performs historically on earnings day, it’s a relatively strong name. It’s rallied five of the past eight quarters on earnings day, with an average move of around 10% […],” said Mr. Ramelli.

He further explains his intentions of getting long on Lululemon Athletica inc. (NASDAQ:LULU)’s stock, with the purchase of $41 – $42 call spreads, which expire on Friday, September 12, betting on the fact that the company’s stock price will actually gain about 10% of its current value. The transaction promises a 4 to 1 return (the price of the $1 spread is $0.2), implying a relatively good result if the fluctuations have been correctly predicted and a small loss for being out of the trade.

Playing it safely and waiting for Lululemon Athletica inc. (NASDAQ:LULU) to disclose their financials will result in much of the premium being incorporated in the future prices of the financial instruments, that is, they will be more expensive relative to the net benefit, but will have a greater level of certainty instead. This is the main reason to follow such a risky prediction on Lululemon Athletica inc. (NASDAQ:LULU)’s value, explained James Ramelli.

Disclosure: none