Put Selling Lululemon Stock (LULU) And Learning From Past Mistakes

Sep 9, 2013 | Lululemon Stock (LULU), Selling Put Options

Last quarter Lululemon Stock disappointed a lot of investors when the stock collapsed from $82.00 all the way to $59.60 on June 21 for a loss of $22.40 or 27%. Following that collapseof Lulu Stock  I was contacted by many investors who had sold puts at $77.50 to $75.00 and found themselves staring at huge losses. All contacted me because they knew that I hate taking losses and all of them were contemplating buying back their in their money naked puts and taking what would have been enormous losses to get out of their positions.

Instead I laid out 3 simple strategies to turn these trades around and all the investors I worked with are now sitting with gains on their trades and preparing for the next round of earnings which come this week for Lulu Stock. Here are the three strategies we used to get back into a profit position after their devastating losses. These are in the order the strategies were entered into.

Strategy 1: Sold In The Money Puts on Lulu Stock

The first strategy was to start selling in the money puts. Since these investors already had in the money puts at $77.50 and $75.00, we sold puts starting at $65 and then as the stock rose we moved to $67.50 and then $70.00. These generated substantial income.

lulu stock in the money putsStrategy 2: Roll Down Existing In The Money Puts

The second strategy we did was waited for Lulu stock to recovery to around $66.50 which I identified as an area of support and then we rolled their existing strikes down. For those at $77.50 we rolled to $75.00 and out to September and for those at $75.00 we rolled to $72.50 and out to September as well.

Lulu stock strategy2

Strategy 3: Roll Down Again Based On The Upper Bollinger Band

The third strategy was to wait for the Upper Bollinger band to be reached and for Lulu Stock to then turn sideways away from the Upper Bollinger Band to do another roll down. With Lulu stock around support at $71.50 we did the second roll down. For those at $75.00 we rolled to $72.50 and now out to December and for those at $72.50 we rolled to $70 and out to December.

lulu stock strategy 3

No Losses Taken / No Assignment of Lulu Stock

Through all of this no losses were taken by any of the investors and no one was assigned any shares of Lulu Stock. All have made very good profits. Some who had higher comfort levels of placing more capital at risk made substantial profits through the selling of in the money puts at $65.00 through to $70.00 (strategy 1 above) as Lulu stock recovered in July and August. Many investors who were trading in Lulu Stock came away with the realization that this company was still earning very good profits and was not going to disappear overnight. This calmed a lot of nerves and once investors began to see the results from selling the in the money puts and rolling down, they all increased the amount of capital they were risking in Lulu Stock. Confidence they learned was key to rescuing their trades.

Lulu Stock – Put Selling This Week’s Earnings

All the investors I have worked with for their Lulu Stock positions have learned the importance of Put Selling at support levels that have a lot of strength. With the upcoming earnings release for this week, two lines of support have significant potential. They are $67.50 and $65.00.

Lulu Stock Support Levels

Lulu Stock Put Strike Premiums

For one week’s worth of risk below are the Lulu Stock put strikes and premiums for this Friday as of 2:30 PM. You can see that the $65 has an excellent premium at $1.30 or 2%. This is the strike we are selling puts against. For the more conservative the $60 put strike makes for very good returns for such a short period of time and offers substantial protection.

Lulu Stock Put Strike premiums

Lulu Stock Earnings Put Selling Summation

The last quarterly earnings caught a lot of investors by surprise and Lulu stock has not fully recovered. However those investors who went through the recovery of their trades with me learned that often taking a loss through closing a losing trade is not the best course of action. Confidence in the company in which investors are selling puts against is a key ingredient in successfully investing with the focus on keeping every trade consistently profitable. Now with the next quarterly earnings those investors caught in the last downturn are better prepared and know that even if earnings fail to meet expectations and the stock drops further, there will be no need to take losses but instead by Put Selling Lulu Stock at support, even if they are caught in a second downturn, these put trades can easily be rescued and kept profitable.

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