Short AI, Long Yoga Pants
Michael Burry’s largest position just fell through the floor.
Lululemon Athletica ( LULU 0.00%↑) plummeted about 20% in the premarket in the wake of its second-quarter report yesterday. Burry had called LULU “the trickster in my portfolio” and confirmed that it was his largest position.
Burry’s housing short made him the central character in The Big Short. He now publishes one of finance’s largest paid newsletters: Cassandra Unchained has tens of thousands of paid subscribers versus our mere hundreds. At least our subscribers are making money, though, doing the opposite of what his are.
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Long Memory, Short Yoga Pants
Burry has spent much of 2026 attacking the AI boom. He disclosed shorts across the AI capital-spending complex, including Nvidia, Applied Materials, the SOXX semiconductor ETF, and Micron Technology. On July 2, he disclosed a direct MU short at about $1,052 per share.
That same day, we published “Time To Get Back Into Micron” and entered bullish options trades on MU and SanDisk. We saw memory as a central AI data-center bottleneck.
On July 27, our technical and fundamental assessment led us to a bearish LULU trade.
Why We Shorted LULU
Lululemon had a strong balance sheet when we opened the trade. Its business was weakening: earnings had fallen, management was guiding to lower revenue, and the stock was trading below its 20-, 50-, and 200-day moving averages, including its 50-day EMA.
Thursday’s report made the deterioration harder to miss. Revenue fell 4%, comparable sales fell 9%, comparable sales in the Americas fell 12%, and operating income dropped to $453.7 million from $523.8 million despite $134.5 million in tariff refunds.
MU was the mirror image: spectacular current fundamentals in an industry Burry had shorted as a cyclical.
Memory is cyclical. The trade turns on how far away the peak is.
Why We Went Long Memory
Timing mattered. Memory shares tend to turn before reported earnings. MU peaked about three months before EPS in 2018 and about five months before EPS in 2022. The question was whether this cycle was close to its peak.
Our July 20 analysis put peak earnings at least 18 months away. Estimates were rising, supply looked tight beyond 2027, new capacity was delayed, and customers were signing multiyear take-or-pay agreements.
Our July 2 entry was early. AI-stack shares kept sliding for roughly two weeks, and we acknowledged that in the July 20 post. The trade is now in the black.
The structure helped. Our MU combo filled for a $3.25 net credit and included a short $790 put paired with a long $780 put. MU closed Thursday around $958, well above that short-put strike. As long as MU stays above $790, we’ll keep that $3.25 net credit.
The Score So Far
Our bearish LULU combo filled at a $2.75 net debit. It earns its maximum $1,225 profit if LULU is at or below $85 at expiration on December 18. Maximum risk is $775 if LULU finishes at or above $140.
By Friday morning, LULU had covered about 60% of the distance from where it closed when we opened the trade to the $85 max-gain line.
Lululemon has yet to announce its third-quarter reporting date. Its recent calendar points to another report in early or mid-December, before our options expire. That gives LULU another chance to disappoint.
Subscribers seeking Burry-sized exposure could scale the number of contracts while keeping the same $775 maximum risk per combo, subject to liquidity and fill prices.
While Burry was long LULU and short MU, we were short LULU and long MU. Both of our trades are open and moving our way.
Two Completed MU Winners
We have profitably traded MU before. Both trades below were full exits from PA Top Names signals.
One MU combo returned 504% on premium, or 173% on maximum risk, between March 3 and May 5, 2026.
Another returned 359% on premium, or 88% on maximum risk, between December 16 and December 19, 2025.
Burry’s positions are open. So are ours. For now, the scoreboard favors long memory and short yoga pants.