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Trade looks for breakout in Lululemon

David Russell (david.russell@optionmonster.com)

A large trade is betting that Lululemon Athletica is ready to break out.

optionMONSTER's Heat Seeker monitoring system detected the purchase of some 5,000 June 85 calls for $2.09 and the sale of a matching number of June 90 calls for $0.89, resulting in a net cost of $1.20. Volume was below open interest at the lower strike, so there are two possible explanations for the trade.

One is that the investor owns shares of the yoga-apparel company and had sold the 85s as part of a covered call strategy. In this scenario, he or she then bought those back and sold the 90s, raising by $5 the level at which they must sell the stock.

Alternatively, both halves of the trade may have been opened, in which case it is a bullish call spread with a maximum profit of 317 percent. (See our Education section)

LULU is up 4.54 percent to $78.47 in morning trading. The stock appreciated some 2,000 percent between 2009 and early last year but has been consolidating since. It's been holding below key resistance at $80 during that time, and today's option trade is looking for it break that level.

The transaction also positions for strong fiscal first-quarter results, which will probably occur early next month, based on last year's schedule.

Total option volume is slightly above average in the name so far today, with calls accounting for almost 60 percent of the activity.

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