LULU Loses Steam Ahead of Earnings Report

Puts are double the usual volume in the options pits

Lululemon Athletica Inc (NASDAQ:LULU) is set to enter the earnings confessional after the close today, June 11, posting its fiscal first-quarter results. The stock is down 3.6% ahead of the event, despite no fewer than five price target hikes this week, including from MKM Partners to $378 from $230.

Despite the dip, LULU is still up 84.3% in the last three months, hitting a record high of $324.76 yesterday, June 10. The stock's strong rebound from its mid-March broad-market lows has tapered off during this last week, the shares now trading sideways with overhead pressure at $324. Today, the equity is grappling with its 10-day moving average, last seen below the trendline despite its longer-term support. Furthermore, LULU's 14-day Relative Strength Index (RSI) of 77 sits firmly in "overbought" territory, meaning a short-term breather may have already been in the cards.

In the past two years, five of LULU's eight post-earnings sessions finished positive, though two of the three negative returns occurred in the past two quarters. The security averaged a next-day return of 9.6%, regardless of direction, which is slightly smaller than the 10.7% move the options market is pricing in this time around.

A look at today's trading shows bearish sentiment, with double the number of puts typically seen -- 21,000 across the tape so far -- slightly outweighing the 18,000 calls. Most popular this afternoon are the weekly 6/12 360-strike call and 280-strike put in the same series, with positions being opened at both.