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Well, that was fun.
Liberation Day definitely liberated me from my money, albeit paper losses. Today’s likely to see a continuation of yesterday’s bloodbath. The S&P 500 futures are down nearly 3% as I write this about two hours before the markets open.
Several things are on the docket today, such as the U.S. jobs report and Federal Reserve Chair Jerome Powell’s speech, but that’s likely not going to matter as investors continue to freak out about the future of global trading.
In the two decades I’ve written about finance and investing, I don’t think I’ve ever seen such a disastrous economic policy from a U.S. president. While I understand the sentiment behind onshoring, it makes no sense for American wallets, and it doesn’t fly if you believe in free and fair trade.
Consider this absurd example.
According to U.S. International Trade Commission data, the islands of St. Pierre & Miquelon, territories of France, had a trade surplus with the U.S. of $3.38 million in 2024. That’s based on American exports to the islands of $51,170 and imports of $3.44 million, primarily lobsters, crabs, and other shellfish.
So, the Trump administration’s reciprocal tariffs were calculated by taking the trade imbalance with the U.S. [$3.38 million in this example] and dividing it by the goods imported from St. Pierre & Miquelon [$3.44 million].
Based on the above example, it is 98.2%, not the commonly reported 99%, but who’s counting?
For argument's sake, implementing a sensible base rate tariff of 10% on countries with trade imbalances up to $1 billion would result in the territories paying a tariff of $338,000. The tariff would increase upward from there—for example, 20% from $1 billion to $100 billion, and so on.
A failing high school economics student likely devised the Trump administration's calculation. Investors will pay for the laziness of it all.
Moving on.
Today, I wasn’t sure what to discuss on the unusual options activity front. Since the markets have been sucker punched, I thought I’d look at recent recommendations for Lululemon (LULU) now that they’ve been blown to smithereens.
Have an excellent weekend.
Lululemon Got Crushed (LULU)
On March 27, before the earnings came out, I discussed how income-focused investors could play the Q4 2024 results.
Between the soft guidance for 2025 released on March 28 and yesterday’s nearly 10% smackdown related to the 46% tariff on imports from Vietnam—it makes most of its clothes there—LULU stock has lost 25% since the March 27 close and is down over 5% in pre-market trading.
I visited my local mall in Canada this past weekend, and the LULU store was slammed. The U.S. part of its business is suffering and will likely continue to do so as American consumers throttle back their spending to keep their heads above water.
However, as retailers and brands go, they remain one of the best, but not even great brands can circumvent the U.S. government’s actions in the near term. As of Feb. 2, Lululemon had 367 stores in the U.S. That’s a lot of U.S. employees whose jobs are now in jeopardy. But I digress.
“If you’re bullish about the company and stock over the next 3-5 years, the first two could be used as downside protection in the very near term, post-earnings. Of the two, I’d probably buy the $290 strike because it has a lower ask price of $2.91, or less than 1% of its stock price,” I wrote.
“I’m assuming you already own the stock. If you don’t, the Jan. 15/2027 $200 strike is an intriguing possibility. While I don’t think it will happen, we could hit a tariff-induced global recession, Lululemon’s business would suffer, earnings would fall, and its share price would respond in kind.”
The unusual options activity from above was from March 26.
Of the first two, which expire today, I suggested buying the $290 put because it was cheaper. In hindsight, it looks like a good call.
A Much Riskier Bet
Where it gets nerve-wracking is the recommendation to sell the $200 put for $1,105 in premium income. My rationale: It hadn’t traded below $200 since the March correction.
“However, it hasn’t traded at $200 since the March 2020 correction, where everything became cheaper than cheap. So, the odds are low, but you sell the put for $11.05 premium, an annual return of 3.2%. You’re not going to get rich off of it, which means an income-focused investor probably isn’t nearly as interested, but it provides a good potential entry point 21 months from now if things get messy for a bit.”
It’s gotten much messier. Now, it’s only $42, away from $200.
Finally, I suggested a covered strangle for those who already owned the stock, which combines a covered call with a cash-secured put. In this instance, you would sell the $200 put and $620 call, also expiring on Jan. 15/2027.
Well, it doesn’t look like you’ll have to worry about selling your shares in early 2027, but you never know.
So, if you made the same bet today, the covered strangle would generate more income, combined with more risk.
Call
Put
In my March 27 recommendation, you were looking at premium income of $24.15. Using the latest prices, you’re looking at premium income of $27.30. Based on yesterday’s closing price of $255.35, that’s an annual return of 5.9% [$27.30 / $255.35 * 365 / 652].
Its share price would have to fall another 22% to hit $200. The ITM (in the money) probability at expiration is 33.75%.
The Bottom Line
I’m pretty relieved that the recommendations from March 27th haven’t completely blown up. However, there’s a long way to go on the January 2027 bet. Unless you’re very bullish on LULU and very risk-tolerant, I wouldn’t go with the covered strangle from above.
Instead, I’d probably go with a long straddle, which involves buying a call and put at the same strike price and expiration date.
The pre-market share price is $243.50, so the put is in ITM, while the call is slightly out of the money. It will cost you $11,440, or 45.8% of the stock. You’ve got almost 22 months for the bet to play out. You’re hoping for the price to blast higher or crater.
If you’re totally bullish, a long call for $620, expiring on Jan. 15/2027, is about half the cost as it was eight days ago.
Happy investing.
