Has Ulta Salon paused long enough?

By David Russell,

Shutterstock photo

One investor is betting that Ulta Salon, Cosmetics & Fragrance is ready to rally once again.

The beauty-products retailer exploded to an all-time high early last month but has been drifting lower since. Yesterday it bounced after testing a key chart level, and the bulls stepped in.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 1,500 December 100 calls for $4.10 and the sale of an equal number of December 95 puts for $4.65. Volume was more than triple open interest at both strikes.

The trader collected a credit of $0.55 and can now earn unlimited profits if ULTA rallies in the next two months. He or she also faces downside risk, but the position differs from simply owning stock because it will track the share price less closely as time passes and expire worthless if ULTA remains between $95 and $100. (See our Education section)

ULTA rose 2.83 percent yesterday to close at $98 even. While it's up 51 percent so far in 2012, the stock is down 3 percent in the last month and is bouncing around the same $92-$96 area that was resistance earlier in the year and is the location of the 100-day moving average. That could be leading some investors to believe that it's ready to make new highs.

The bullish trade pushed total option volume in the name to 24 times greater than average yesterday, according to the Heat Seeker. Ulta's next earnings report is scheduled for Nov. 29.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: ULTA

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