When it comes to outright volatility, it’s difficult to look past athletic apparel provider Lululemon Athletica (LULU). Following a mixed earnings performance and disappointing outlook, LULU stock hemorrhaged ~15% of its value last Friday. Unsurprisingly, analysts have rerated their expectations, with only a handful of experts remaining bullish on the name. Nevertheless, for contrarians, this confluence of problems could be an opportunity in disguise.
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Sure, the numbers themselves warrant extreme skepticism. For Q2, Lululemon posted earnings per share of $3.10, which technically was above Wall Street’s expectation of $2.85. However, revenue of $2.53 billion fell just shy of the consensus target of $2.54 billion. In fairness, the top line expanded 6.5% from the year-ago period. Unfortunately, that’s where much of the good news ended.
For the full year, Lululemon is now anticipating sales of $10.85 billion and $11 billion, below the company’s earlier guidance of $11.15 billion to $11.30 billion. Also, the leadership team’s guide for EPS was only $12.77 to $12.97, well off prior expectations of $14.58 to $14.78.
Fundamentally, the apparel maker and retailer pointed to the impact of Donald Trump’s tariffs. Specifically, U.S. tariffs on imports from China hurt the brand, where the company makes most of its products. It’s not unreasonable, then, to head for the sidelines.
Still, for options traders, a combination of quantitative research and statistical validation points to an enticing upside prospect. Therefore, now may not be the time to give up on LULU stock.
Why Out-of-Sample Testing Matters
Much of the investment commentary out there rests on fragile epistemological and statistical foundations. To make forward-looking claims more robust, analyses should incorporate out-of-sample testing to establish meaningful confidence intervals; without this, arguments risk becoming self-referential and circular.
Most financial publications begin with a claim—often that a security is undervalued—framed as a discovery or hypothesis. This usually stems from historical data, such as the past five years of price action. The challenge is that the supporting evidence—valuation ratios, technical patterns, or unusual options activity—typically comes from the same dataset, raising concerns about circular reasoning.
Structurally, this reasoning is similar to making a claim and then citing the claim itself as proof—for example, attributing a fortunate outcome solely to a personal belief. In both cases, the claim and the evidence are derived from the same data source.
At this stage, analysts often emphasize the “rigor” of their work by citing additional ratios, patterns, or options activity. Yet adding more in-sample data points does not resolve the underlying circularity. Repeating a claim—or finding others who agree with it—does not, in itself, make the conclusion any more valid.
What would help establish the FSM’s existence is out-of-sample testing to control for exogenous explanations of its supposed presence — and its ability to help people find missing keys. Otherwise, without this testing, the claims are merely speculative.
It’s the same principle as financial “analysis.” Without out-of-sample testing, you’re just looking at past data rearranged with a presuppositional argument baked in.
Identifying and Validating an Opportunity in LULU Stock
Quantitatively, over the past 10 weeks, LULU stock has exhibited a 3-7-D sequence: three up weeks, followed by seven down weeks, with an overall downward trajectory across the period. It’s a rare sequence — the run has materialized only 22 times on a rolling basis in my in-sample dataset, which spans from January 2019 to July 2025.
It’s also true that in the next 10 weeks following the flashing of the 3-7-D sequence, LULU stock is up only three times. On a statistically naïve basis, the bulls theoretically have only a 13.6% chance of an upside, which matches the negative forecasted skew or drift of the sequence. This stands in contrast to LULU’s aggregate or baseline skew, which points upward.
Still, in the first six or seven weeks, the 3-7-D sequence’s skew tends to be positive. Subsequently, I see value for short-term options speculators.
As mentioned earlier, this claim is based on in-sample data. To conduct out-of-sample testing, I analyzed the response to the 3-7-D sequence relative to price action exclusively contained within the past decade:
Chart showing LULU’s “out-of-sample” pricing data covering the past nine weeks and a forecast for the coming 10-week period. Credit: Joshua Enomoto
With this test, we find that the 3-7-D has been a reliable reversal signal for the bulls. Circumstances have changed this decade. However, we still find that the sequence continues to be a sentiment reversal signal; it’s just that traders need to act earlier rather than later.
From the market intelligence above, the trade that arguably makes the most sense is the 170/175 bull call spread expiring on October 17th. This transaction involves buying the $170 call and simultaneously selling the $175 call, for a net debit paid of $215 (the maximum possible loss).
Should LULU stock rise through the short strike price of $175 at expiration, the maximum profit is $285, a payout of roughly 133%. Even better, the breakeven price for this wager is $172.15, which is a mere 2.59% above Friday’s close of $167.80.
With more than a month for this trade to be profitable and with a major out-of-sample test to validate the claim, LULU stock appears very tempting.
Is LULU a Good Stock to Buy Now?
On Wall Street, LULU stock currently carries a Hold consensus rating based on five Buys, 16 Holds, and one Sell rating in the past three months. On average, analysts have settled on an average stock price target of $199.95 for LULU stock, implying more than 22% upside potential over the next 12 months.
Options Traders Eye a Rebound Opportunity in Lululemon
Lululemon’s latest guidance was undeniably disappointing, and the stock may face further challenges ahead. Even so, options traders may find room for a short-term opportunity. A quantitative signal—identified and validated through out-of-sample testing—suggests LULU could reach $175 within the next six weeks.