This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.
Ulta Beauty (ULTA) Looks Poised to Break to Fresh Record Highs
Several analysts are optimistic regarding Ulta Beauty’s stock price following their recent earnings surprise, here are two of them – Why the Earnings Surprise Streak Could Continue for Ulta (ULTA) and How one retailer is beating the odds.
From a technical standpoint, ULTA has held above prior support near $330 and bounced higher. In the advance from the level, it has retaken both the 50 and 100-day moving averages. What’s most impressive about ULTA is the longer-run trend as the stock is up more than 40% YTD already. Considering the strong trend, and lack of bearish evidence, the path seems to be to the upside for ULTA with an aim of breaking to new record highs above $370.
If you agree there’s further upside ahead for ULTA, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.
Buy To Open ULTA 13Sep19 342.5 Puts (ULTA190913P342.5)
Sell To Open ULTA 13Aug19 345 Puts (ULTA190913P345) for a credit of $1.13 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when ULTA was trading near $347. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will only be $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers). Each contract would then yield $110.50 and your broker would charge a $250 maintenance fee, making your investment $139.50 ($250 – $110.50). If ULTA closes at any price above $345 on August 13, both options would expire worthless, and your return on the spread would be 79% (901% annualized).
Changes to Investor’s Business Daily (IBD) Top 50 This Week:
We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run. Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.
As with all investments, you should only make option trades with money that you can truly afford to lose.