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