Lululemon Looking to Squeeze Higher

The U.S. equities market is taking a well-deserved breather today, as traders
are likely taking some money off the table following the historic run
experienced in October. On a day like today where trading screens are a sea of
red, relative strength plays are easy to spot. Essentially any stock that is
still in the green is exhibiting relative strength or outperforming the market.
The rationale behind seeking relative strength goes something like this if the
stock is able to rise in a weak tape, it is all the more likely to lead in a
strong tape. One such stock exhibiting strength today is Lululemon Athletica
(NASDAQ: LULU ). Suppose we want to set ourselves up for a continued rise into
year-end for this athletic apparel company. In July, LULU reached an all-time
high just south of $65, so we can use that as our potential target. Instead of
buying the stock here in the $57 area, a cheaper, limited-risk way to play is by
buying a bull-call spread. The potential risk is limited to the initial debit
paid to enter the trade, and the max reward is limited to the width of the
spread minus the debit. One call spread worth considering for bullish exposure
on LULU is the Dec 60-65 call spread. To enter the position, you would "buy to
open" the LULU Dec 60 Call while at the same time "selling to open" the
LULU Dec 65 Call. If entered at around a $1.90 net debit (the long $60 calls are
currently trading at $3.50 and the short $65 calls are currently at $1.60), the
risk would be limited to $190, and the reward would max out at $310. Source :
MachTrader At the time of this writing Tyler Craig had no positions in LULU.