Let me start off by saying my hair is actually pretty long right now. It’s the summer time and I feel like my hair should be shorter. Every time I mention decreasing its length, certain people, with persuasive powers, convince me otherwise. In the next two weeks, I do plan on cutting my gorgeous “Patrick Swayze” locks and having a shorter hair cut for all my various summer activities.
STOCK TO WATCH
I mention all this to say, Ulta Salon, Cosmetics & Fragrance Inc. (ULTA) might be a place I consider going to trim this gorgeous mane of mine. This is one stock which has had an absolutely hot air balloon type of growth over the last four years. It was valued less than $5.00 in March of 2009. By the end of June it should be coming into contact with the triple digit pricing once again.
THIS IS DISTRIBUTION
The phase that ULTA is in is considered a distribution phase. This is where “the smart money” traders begin to take their profits and slowly sell all the positions they’ve accumulated in the past.
SELL A COVERED CALL
With its recent earnings statement, ULTA increased more than 14%. If you own more than 100 shares of ULTA, selling a $105 covered call for July would be a superb trade to consider for two reasons: first, the premium isn’t that bad, bringing in about .80 per contract; secondly, the $101 price is a brick wall form of resistance and buyers will have a hard time breaching it. If you did sell at 105, you would be selling at an all time high locking in great profits. I mean, that’s the point of trading, right?
The other trading potential would be a close above $104.70 to continue the bullish trade. This likely would be a longer term trade, as ULTA would be breaking out of a longer term distribution phase, breaking out of a strong resistance and likely, attempting to build ULTRA hair salons on the moon.
There is a lot of hype on this stock right now. Be careful and simply realize the resistance facing the buying pressure. Therefore, plan your trade and trade your plan!
