Traders Buying Puts on Lululemon Athletica (LULU)

10/09/2009 12:01 am EST

Focus: OPTIONS

Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Option activity has been skeptically skewed on Lululemon Athletica inc. (LULU) during the past week. The International Securities Exchange (ISE) reports that traders have bought to open 1,951 puts on LULU during the past five days, compared to just 20 calls.

LULU price chartIn fact, speculators on the ISE have rarely shown a greater appetite for bearish bets on LULU. The security's ten-day ISE put/call volume ratio is docked at 52.87, as puts have been roughly 53 times more popular than calls. This ratio ranks higher than 98.4% of comparable readings taken during the past year, suggesting a near peak of pessimistic activity on this exchange.

In the same vein, LULU's Schaeffer's put/call open interest ratio (SOIR) stands at 2.05, with puts more than doubling calls among options set to expire within three months. This reading is hovering within just nine percentage points of its own annual pessimistic peak.

Short sellers have also staked out a massive bearish position against LULU. Short interest on the equity rose by 2.1% during the most recent reporting period, and now accounts for 14.7% of the stock's available float.

Despite this heavily negative sentiment, LULU is actually faring quite well on the charts. The shares have surged more than 195% in 2009, and they recently turned higher after finding solid support at their ten-week moving average. This trend line, along with its 20-week counterpart, has guided the security consistently higher since March.

By Nick Perry of Schaeffer’s Trading Floor Blog

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