Guy Adami And Mike Khouw's Lululemon Option Trade

On CNBC's "Options Action," Guy Adami shared his bullish view on Lululemon Athletica Inc (NASDAQ: LULU). He likes the stock because of growing menswear, China growth and improving margins and he expects it to trade higher going into earnings.

Mike Khouw thinks the stock has a high valuation and its options prices are pretty high. Instead of buying calls, he wants to use a call calendar options strategy.

See Also: Analyst: Lululemon's Luxury-Like Positioning Can Stretch Company To A $40B Market Cap

He wants to sell the December $250 call and buy the January $250 call for a total debit of $1.85. If the stock trades below $250 at the December expiration, the December call would expire worthless and the breakeven for the January call would be at $251.85 or around 8.5% above the current stock price. The maximal risk for the trade is $1.85.

The company reports third-quarters earnings on Wednesday.