Call Options Or Put Options On Ulta Salon (ULTA)?

| December 6, 2013 | 0 Comments

hair salonUlta Salon (ULTA) is in the spotlight today after releasing third quarter results Thursday after close.  The retail chain offers cosmetics, fragrances, haircare, and skincare products.

ULTA shares are trading at $118.00, although as of this writing, they’re down below $100 after hours.  Not including afterhours action, the stock’s up 63% from the 52-week low of $72.51 and is 11% below the 52-week high of $132.72. 

Is this an opportunity to buy call options on ULTA because of a possible overreaction on the part of sellers?  Or should you buy put options on ULTA because the company’s third quarter results were well below expectations?

The bulls make a convincing argument…

ULTA’s results were not as good as expected, but you can easily make the case investors are overselling on the news.  After all, the company still grew revenues and profits nicely – just not as much as expected.

Revenues climbed 22% year over year, and EPS climbed to $0.70 from $0.59 in the year prior.  Plus, the company showed large gains in its online business.

What’s more, the company opened a record number of new stores during the quarter (55 sites).  That doesn’t seem like a company deserving of the selloff its experiencing. 

But the bears have a compelling case as well… 

On the other hand, ULTA missed on every key area of its third quarter predictions.  Revenues were roughly $4 million below analysts’ forecasts and EPS was $0.04 lower.

More importantly, the company substantially lowered outlook.  The company expects to earn between $1.07 and $1.10 per share in the fourth quarter, which is well below the $1.24 projections.

The company is essentially seeing lower demand continue into the holiday shopping season – and that’s never a good thing for a major retailer.

So is ULTA’s stock being oversold due to an overreaction by investors, or are the worse than expected third quarter results a reason to take a bearish position?

If you think the bulls are right, take a look at buying the ULTA January $135 calls for around $2.00.

If you think the bears are right, take a look at buying the ULTA January $90 puts for around $2.00.

Please note:  These prices could change dramatically given afterhours activity at the time of this writing.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.

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