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Investment Thesis
Market-makers [MM] everyday are called on to balance buyers and sellers’ share volumes in transactions. For typical small, regularly appearing individual investor trades, no problem. Markets are automated to quickly adapt from electronic “offer books” with little to no help.
But when systems are surprised by irregularly-appearing, huge volume transaction orders from “institutions” adjusting billion-$ portfolios, they choke, needing MM help to get in balance. Where sufficient protection from subsequent price change in a subject stock can be found at a reasonable cost, then MMs will borrow shares lent (usually by other institutions for a fee) to be delivered to the buy-side of the big trade order.
The structure and prices of the derivative-securities’ contracts providing the underlier-stock price-change protection reveal the MM-community and institutional expectations of the stock’s higher and lower price limits. Those limits define price risk and rewards seen in the next few months for the subject stock, making comparisons of investment prospects between similar alternatives in the next few months viable.
This article compares the prospects for Lululemon Athletica Inc. (LULU) with other apparel stock alternative investments, and with equity market indexes.
Description of Subject Company
“lululemon athletica inc., together with its subsidiaries, designs, distributes, and retails athletic apparel and accessories for women and men. It operates through two segments, Company-Operated Stores and Direct to Consumer. The company offers pants, shorts, tops, and jackets for healthy lifestyle and athletic activities, such as yoga, running, and training, as well as other sweaty pursuits. It also provides fitness-related accessories. The company sells its products through a chain of company-operated stores; outlets and warehouse sales; a network of wholesale accounts, such as yoga studios, health clubs, and fitness centers; temporary locations, including seasonal stores; and license and supply arrangements, as well as directly to consumer through mobile apps, and lululemon.com e-commerce website. As of January 31, 2021, it operated 521 company-operated stores under the lululemon brand in the United States, Canada, the People’s Republic of China, Australia, the United Kingdom, Japan, New Zealand, Germany, South Korea, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and Switzerland. lululemon athletica inc. was founded in 1998 and is based in Vancouver, Canada.”
Source: Yahoo Finance
Yahoo Finance
Reward~Risk Comparison with Alternatives
Figure 1
blockdesk.com
(used with permission)
The tradeoffs here are between near-term upside price gains (green horizontal scale) seen worth protecting against by Market-makers with short positions in each …….
