On CNBC's "Options Action," Guy Adami shared his bullish view on Lululemon Athletica Inc LULU. He likes the stock because of growing menswear, China growth and improving margins and he expects it to trade higher going into earnings.
Mike Khouw thinks the stock has a high valuation and its options prices are pretty high. Instead of buying calls, he wants to use a call calendar options strategy.
See Also: Analyst: Lululemon's Luxury-Like Positioning Can Stretch Company To A $40B Market Cap
He wants to sell the December $250 call and buy the January $250 call for a total debit of $1.85. If the stock trades below $250 at the December expiration, the December call would expire worthless and the breakeven for the January call would be at $251.85 or around 8.5% above the current stock price. The maximal risk for the trade is $1.85.
The company reports third-quarters earnings on Wednesday.
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