Ulta Salon, Cosmetics, and Fragrance (ULTA) is scheduled to report earnings on Thursday, March 8, 2012 after the market closes.
In previous earnings releases, Ulta Salon has had some major price moves after reporting earnings and I am expecting something similar this time around.
Ulta Salon is a beauty retailer that provides prestige, mass, salon products, and salon services in the United States. Its stores offer approximately 21,000 beauty products in various categories, which include cosmetics, such as products for the face, eyes, cheeks, lips, and nails; haircare, including shampoos, conditioners, styling products, and hair accessories; salon styling tools comprising hair dryers, curling irons, and flat irons; skincare, and bath and body, such as products for the face, hands, and body; fragrances for men and women.
Currently, Ulta Salon is trading at $85.15/share. The 52-week range is $40.34 - $85.91.
|Market Cap:||5.27 B|
If there is one concern I have with this trade it is that Ulta Salon is near its 52-week high. However, another great earnings report and future estimates could really propel this stock to near $100.00/share very soon. It would not surprise me at all. A miss, on the other hand, could easily send the stock back to the mid $70.00/share range. This is why I like the trade I will be recommending.
The strategy that I will be using is a 'strangle' options trade. The 'strangle' is when a trader buys both out-of-the-money call and put options with different strike prices, but using the same expiration month. I generally like to go out at least one month forward on this type of trade because the time-value will not decrease as fast and hurt the premium on the option price.
Using short-term expiration with a 'strange' or 'straddle' is much more risky. By going out at least one month until the options expire, you are not only giving yourself time for the trade to work out, but also as a safety net because the implied volatility will drop precipitously after earnings.
Before I get into what strike prices I will be using, I will first show you what Ulta Salon has done the last four quarters after reporting earnings, in terms of price movement. Here is a closer look at that:
On December 1, 2011, Ulta Salon reported third-quarter earnings. The stock saw the following price both before and after reporting earnings:
|Dec 2, 2011||70.48||74.79||70.10||74.19||3,010,294|
|Dec 1, 2011||69.75||70.49||68.00||68.49||1,992,562|
|Nov 30, 2011||71.10||71.24||68.50||69.63||2,476,451|
|Nov 29, 2011||67.69||69.93||67.69||68.37||833,282|
On September 8, 2011, Ulta Salon reported second-quarter earnings. The stock saw the following price both before and after reporting earnings:
|Sep 9, 2011||62.13||68.70||62.03||68.45||4,659,440|
|Sep 8, 2011||56.59||60.20||56.03||59.76||1,904,520|
|Sep 7, 2011||56.39||57.25||55.60||56.80||626,833|
|Sep 6, 2011||53.26||55.59||51.64||55.37||1,216,393|
On June 7, 2011, Ulta Salon reported first-quarter earnings. The stock saw the following price both before and after reporting earnings:
|Jun 9, 2011||55.94||57.25||55.19||57.05||1,179,728|
|Jun 8, 2011||56.33||56.83||53.10||55.90||3,945,236|
|Jun 7, 2011||49.99||50.50||49.34||49.61||1,416,755|
|Jun 6, 2011||51.34||52.10||49.60||49.70||843,149|
On March 10, 2011, Ulta Salon reported fourth-quarter earnings. The stock saw the following price both before and after reporting earnings:
|Mar 11, 2011||45.47||45.47||45.47||45.47||3,042,800|
|Mar 10, 2011||40.70||42.57||40.34||42.11||1,211,060|
|Mar 9, 2011||41.66||42.28||41.00||41.13||705,278|
|Mar 8, 2011||41.25||42.21||40.66||41.87||520,136|
I am confident that Ulta Salon will deliver the necessary price move to make this trade a profitable one.
Currently, I am looking at the April 2012 $95.00 call option and the April 2012 $75.00 put options. This trade can be placed at a fair price right now, but I would not hesitate to get your order in as soon as possible. The implied volatility should increase as the report nears Thursday.