Last October 24th, I highlighted a pair trading opportunity. Long Lululemon uses a long call spread, the March 28th weekly $280/$330 call spread, and short Nike uses a March 28th 85/70 put spread. Since that time, Lulu has risen nearly 8%, and Nike has fallen roughly 14%. The LULU call spread is close to the maximum achievable profit (the short $330 strike is slightly over 2% out of the money), and the Nike spread has reached the peak achievable profit as the stock is now almost 3% below the lower strike for the put spread. Take profits and close both spreads in the pairs trade now. This is particularly important in the case of Lululemon because while Nike has reported—and the stock fell to lows not seen since 2020—Lulu will be reporting earnings on Thursday, March 27th. The options market implies that LULU shares could move 10%, higher or lower, by the end of the week between $290 and $355. Most of the potential profits in the call spread have already been made. Why take a risk without potential reward?
