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By Dr. Paul Price of Market Shadows
ULTA Salon, Cosmetics and Fragrances (ULTA) has been a raging success since coming public in October of 2007. However, the shares have been all over the place due to occasional excessive valuation levels. Lately, ULTA has been down ahead of its earnings report.
ULTA hit an all-time peak of $132.70 in November 2013, putting the shares at more than 42x earnings for the FY due to end on Jan. 25, 2014. Since then the stock retreated by more than 28%. ULTA was sitting at about $85 just ahead of todays scheduled, after the close, earnings announcement.
Right before the close Market Shadows Virtual Put Writing Portfolio sold three contracts of the Jan. 2016, $80 puts at $12 per share.
We must now be ready to buy 300 shares of ULTA at a net price of $68 per share ($80 strike – $12 put premium).
Our best case result will be keeping the $3,600 in premium received. That will be the result if ULTA goes up, stays unchanged or even if the stock declines to no lower than $80 on the option's Jan. 15, 2016, expiration date.
Ulta is a good company. We feel good about these puts. ULTA shares have not been below $68 for even one day during the past 28 months.
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Disclosure: Paul is short ULTA Jan. 2016, $80 puts in his personal account.
