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44% in 46 Days From a Play on ULTA?:
There is a lot to like about Ulta Salon, Cosmetics & Fragrance's (ULTA). It has been a darling of Wall Street this year, rising about 50%. It appears on IBD’s Top 50 list of momentum stocks. The Motley Fool guys have written over 300 articles on the company and include it in their top three beauty stocks. The company has a plan to add on 500 new stores, and they have exceeded earnings estimates every quarter for the past year.
The chart for the last year shows a steady climb upward, but there have been some setbacks along the way:
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If you think the momentum might continue for about six more weeks, you might consider this trade we made on April 3rd when ULTA was trading about $285.
Buy To Open 4 ULTA 19May17 275 puts (ULTA170519P275)
Sell To Open 4 ULTA 19May17 280 puts (ULTA170519P280) for a credit limit of $1.55 (selling a vertical)
We collected $620 from this trade, less commissions of $10 at the rate Terry's Tips subscribers pay at thinkorswim. A maintenance requirement of $2000 will be assessed by the broker, less the $610 net we collected, making it a $1390 investment. This would be the maximum loss if the stock ended up below $275 on May 19th. If it is at any price above $280 on that day, it works out to a 44% gain for the 46 days we will have to wait.
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The stock can fall about $5 and we will still make the maximum gain. While this might not be much downside protection, it is surely a lot better deal than owning the stock where even a dollar drop in the stock will result in a loss for the period.
If the stock does fall below $280 near the end of the six-week period, we would probably roll out the spread to a future time period, a tactic that will give us a little more time for it to rise above $280. If that becomes necessary, we will send you a note explaining the action we took.
As with any investment, you should do your own research on the fundamentals of any stock or options you buy, and you should only be risking money that you can truly afford to lose.
Happy trading.
Terry
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Any questions? I would love to hear from you by email (terry@terrystips.com), or if you would like to talk to our guy Seth, give him a jingle at 800-803-4595 and either ask him your question(s) or give him your thoughts. seth@terrystips.com
You can see every trade made in the actual option portfolios conducted at Terry’s Tips and learn all about the wonderful world of options by subscribing here. Why wait any longer to make this important investment in yourself?
Even better, you can become a Terry’s Tips Insider, and receive all our educational reports and materials absolutely free by opening a new account at the best options broker around - thinkorswim. If you open an account with our link, they will give you 60 days of free trading or up to $600, the same deals they give to everyone who opens an account with them. You must use this link to sign up - open thinkorswim account – and once you have funded your account with at least $3500, email Seth@TerrysTips.com and let him know that you have done it, and this is what he will do – sign you for our Premium Service package ($119.95 value plus an extra 4 months of our Premium Service, valued at another $190.80). You get $300.65 worth of services without paying us one penny.
I look forward to having you on board, and to prospering with you.
Terry
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