Optimistic on LULU? This Bull Put Spread May Fit Perfectly

Lululemon (LULU) has seen some heavy selling in recent months but is starting to find a base around $160.

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Lululemon has its lowest PE ratio in a number of years at just 11.20.

LULU BULL PUT SPREAD

Today, we’re going to look at a bull put spread trade, but instead of using a regular monthly expiration, we will look at a longer-term trade.

Longer-term option trades tend to move a little slower than shorter-term trades. That allows more time to adjust or close, but also means a lower annualized return.

As a reminder, a bull put spread is a bullish trade that also can benefit from a drop in implied volatility.

The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

Implied volatility is currently sitting at 65.15% which gives LULU an IV Percentile of 89% and an IV Rank of 80.21%.

To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.

If we go out to March 2026, we could sell the March 20 put with a strike price of $130 and buy the $125 put, which would create a bull put spread.

This spread was trading yesterday for around $0.90. That means a trader selling this spread would receive $90 in option premium and would have a maximum risk of $410.

That represents a 21.95% return on risk between now and March 20 if LULU stock remains above $130.

If LULU stock closes below $125 on the expiration date the trade loses the full $410.

The breakeven point for the bull put spread is $129.10 which is calculated as $130 less the $0.90 option premium per contract.

That breakeven price is around 23.90% below Monday’s closing price.

Conclusion And Risk Management

One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $90, so we could set a stop loss equal to the premium received, or a loss of around $90.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be if the stock breaks through the key level of $160, which is the current level of support.

Please remember that options are risky, and investors can lose 100% of their investment.

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

On the date of publication, Gavin McMaster had a position in: LULU . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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