Explosive Gains Lure Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA) Options Traders

Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA) is red-hot after an impressive update to its guidance

by Alex Eppstein

Published on Oct 13, 2016 at 10:52 AM

Ahead of its annual analyst and investor day, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) stock and options volume are both running near the top of their respective annual intraday ranges. Sparking the uptick in trading activity are the company's upwardly revised third-quarter and full-year forecasts, not to mention its 12.8% year-over-year jump in same-store sales.

At last check, ULTA has surged 7.3% at $256.52. Year-to-date, the shares have now advanced nearly 39%, and could make a run at their all-time high of $278.63, notched in late August -- prior to a surprise September pullback. As it is, the stock is on track to close north of its 80-day moving average for the first time since early last month.

As alluded to, options activity on ULTA is fierce this morning. Total intraday volume is running at seven times the expected rate, with roughly 8,200 contracts on the tape. In fact, the average daily volume for ULTA is just 3,839 contracts. On an absolute basis, call options have a slight advantage over puts.

Over the past couple weeks, traders have preferred calls over puts, as well. Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.57 calls for every put -- a ratio ranking in the high 86th percentile of its annual range.

Elsewhere on Wall Street, sentiment is tilted in a bullish direction -- understandable, given ULTA's technical triumphs. Among the brokerage crowd, 11 analysts rate the shares a "strong buy," compared to seven "holds" and not one "sell." On top of that, the stock's consensus 12-month price target of $291.25 stands in record-high territory.

Last but not least, short sellers have been turning tail en masse. During the last two reporting periods, short interest on Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) plummeted 16.5%, and now accounts for a relatively slim 3.5% of the stock's total float.

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