Risk Reversal with Lululemon Shares

Lululemon Acquisition of Mirror for $500 Million. Rationale for the strategy:

  1. Long-term trend: “we have become a nation of walkers.”
  2. Technology could be transformative and help Lululemon stay in front of customers.
  3. Avoid concerns “about economics of the acquisition.”

Lululemon Share Price: $305

  1. Sell the Sept. $300 put options for $22.30.
  2. Buy the Sept. $320 call options for $17.90.

“The trade positions investors to buy Lululemon’s stock at $300 and to participate in any gains above $320.” The risk is that the stock plummets below the put strike price. The author, however, is bullish. On the subject of betting against management: “few people expected that anyone could charge about $100 for exercise pants and build it into a $38 billion company.” 

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Source: Steven M. Sears | " How to Play Lululemon as It Moves Into Peloton’s Space " | Barron's | 07/02/2020 | Visit