Risk Reversal with Lululemon Shares
Lululemon Acquisition of Mirror for $500 Million. Rationale
for the strategy:
- Long-term trend: “we have become a nation of
walkers.”
- Technology could be transformative and help
Lululemon stay in front of customers.
- Avoid concerns “about economics of the
acquisition.”
Lululemon Share Price: $305
- Sell the Sept. $300 put options for $22.30.
- 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.”
Source: Steven M. Sears | “How to Play Lululemon as It Moves Into Peloton’s Space” | Barron's | 7/2/2020 | Visit
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