Lululemon is up more than 85 percent in the past year in one of the top performances of the Nasdaq 100.
One trader is betting it can stretch even further to new highs before the end of March.
"The chart looks fairly supported," Todd Gordon, founder of TradingAnalysis.com, told CNBC's "Trading Nation" on Tuesday. "I own it in my longer-term portfolio. I own the outright stock. I see some encouraging patterns here, something I want to lever up in the options market, see if we can get a move back above these old $160 highs."
The athleisure retailer hit a record of $164.79 in October. It is currently 13 percent away from that high.
"I like the way the stock has recovered after that poor earnings report [in December]," said Gordon. "Just like a shot after that double bottom at $110 we've come up here very sharply. We've fallen into something called 'a bull flag' which is just a short-term consolidation, just a little bit of a breather as buyers step aside, let some profit-taking come in."
Since bottoming out at around $110 in December, Lululemon shares have rallied 31 percent. Then, since late January, the shares have consolidated in a range of $144 to $152.
Gordon has an options trade to take advantage of the move he expects before Lululemon next reports earnings on March 26.
"We're going to go out to these March 22 options," he said. "This trade is designed to take you out before earnings. As I mention, implied volatility will go up as we head into that March report so that means the value of the option that we're long, which is deeper in the money, the $155 will be pumped up, will help us. The $165 that we're short will work against us as implied volatility goes up being that it's further away from the money."
Simply put, Gordon is buying the $155 call and selling the $165 call, betting on a move above $160.
"We're going to pay $2.74 for a $10 spread risk so that means we're going to risk $224 to potentially make $726. Certainly a good risk-reward ratio," he said.
To manage risk, Gordon is also putting a stop loss on if the $2.74 trade sees a 50 percent drawback to around $1.37.
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