- Ulta Beauty (ULTA) reports earnings after the close (~4:00pm)
- Options are pricing in about a +/-7.8% (about $17) move by tomorrow's close.
- Prior earnings (in reverse chronological order) saw actual moves of +7.1%, +1.2%, -4.7% and -5.5%.
Here's a 1 month expected move chart with this Friday's move highlighted, via Options AI technology:
ULTA has been as low as $190 within the last month. The bearish consensus would take the stock down only to $200 on a move lower this week, so it is not pricing in recent lows. And the bullish consensus would be new highs for the month but still lower than where the stock was even in early June (about $255). Pulling the chart farther back we see what a wild ride it has been for the stock the past year with highs near $300 and lows near $125.
Needless to say it's been a weird year for chain stores, especially ones focused on making you look good.
Ways to Trade
Neutral Flies and Condors (this Friday) - First, let's look neutral with a credit Iron Condor based on the expected move, isolating Friday:
This 1 to 1 risk reward is a good opportunity for those looking to fade the earnings move. The 7.8% expected move makes sense given the past 4 earnings moves and even if the stock blew out that move in either direction the risk/reward is priced more as a coin flip on that happening, which seems fair.
For directional views it probably makes sense to look out a few weeks to September monthly expiration, here's a bearish trade comparison to the bearish expected move Sept 18th:
The bearish short call spread breaks even at $229 in the stock, risking $16 above that to a max loss at or above $245.
The bearish long put spread needs the stock below $212 with a max gain down at $197.50.
The corresponding bullish trades look similar risk/reward: