Evolus: High Implied Volatility Brings Opportunity

Nov. 24, 2020 12:42 AM ETEvolus, Inc. (EOLS)12 Comments
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Individual Trader


  • The company is awaiting a decision from the ITC concerning the use of Jeuveau in the US.
  • Implied volatility is well over 240%.
  • The stock is dirt-cheap if the ban is not inflicted.
  • Risk is high, however, so we are leaning towards a volatility play instead of a directional one.
  • Looking for a portfolio of ideas like this one? Members of Elevation Code get exclusive access to our model portfolio. Get started today »

Evolus Inc. (NASDAQ:EOLS) came across a screen we ran where our objective was to find low-priced companies which were trading with high levels of implied volatility and which had ample liquidity in their options. We like to trade high-implied volatility companies within our portfolio, as they bring an extra dimension to the portfolio. The reason being is that they bring extra diversification because many times these trades involve a volatility crush. What we mean here is that we merely sell option premium instead of trying to ascertain a direction on the trade.

If we look at Evolus' chart at present, we can see that shares have been basically making lower lows since mid-2018. The recent lows in October though of this year leads us to believe that we may have a double bottom or most likely an inverse head and shoulders reversal pattern being played out at present. We favour the latter (inverse head and shoulders) because the October dipped slightly below previous July support. The bottoming pattern looks probable because of the bullish divergence in the RSI indicator and because of the recent third-quarter numbers and trends.

Although reporting a negative bottom line earnings number (-$0.33) in the most recent third quarter, Evolus lost less than expected. The pandemic-induced lockdowns hit the company hard this year, but its rate of losses has been sharply decreasing in recent quarters. Analysts who follow this stock expect the beauty company to report -$0.24 in Q4 and then -$0.10 in the first quarter of next year.

The bullish expectations come on the back of a growing account base, increasing re-order rates among existing customers and strong take-up of the company's loyalty program. Evolus is the typical “non-essential” type of company which should do very well if pent-up demand increases as people become vaccinated. Revenue trends continue to improve


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This article was written by

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https://individualtrader.netMy name is Jack Foley and I primarily write and research investment commentary as well as trade the markets. I'm Irish but live in Madrid, Spain with my beautiful wife and 2 children. I believe to be successful at this game, one has to have real passion for the markets and be constantly reading and researching material. From fundamentals analysis to technical analysis, options or futures, income or capital gain, long term trading or day trading, there is something for everyone in the markets depending on one's respective goals. "Starting with the end in mind" is a great mindset to start your investment career with respect to ascertaining exactly what you want to get out of the markets. Write down what you want and how quickly you want it. Therefore depending on the capital you are starting out with, you will then know what levels of risk you need to take. Whatever doubt or query you may have, I'm here to help. Shoot me an email in the contact tab and I'll come back to you as soon as possiblehttps://seekingalpha.com/author/individual-trader/research

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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