Retail sales for the month of June are due out on Wednesday and after a disappointing month in May, we are expecting continued weakness in consumer spending. Analysts are looking for the losses to narrow down to -0.2 percent. While there may be some consolidation in spending numbers, we expect the number to still be negative and for investors to react by selling apparel and clothing stocks.
With that said, a great way to get exposure to the report is Lululemon Athletica (LULU). The options are liquid and the spreads tight enough to trade.
Technically, the chart looks to be forming a bear flag while implied volatility remains somewhat high. Also, 20-day EMA has crossed below the 50-day EMA, which may signal that buyers are becoming thin.
The high implied volatility offers a great chance to sell premium in the August options.
SELL -5 VERTICAL LULU 100 AUG 10 42/45 CALL @.75 LMT
The 42/45 August bear call spread offers a strong possible ROE of 33% over the next 40 days. Also, in order for this trade to begin losing money at expiration the underlying stock would need to move 10 percent higher.