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Is Bare Escentuals (BARE) back on track?

Posted Oct 30th 2009 1:20PM by Brent ArcherBrent Archer RSS Feed
Filed under: Major movement, Earnings reports, Good news, Options, Technical Analysis

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BARE logoBare Escentuals (NASDAQ: BARE - option chain) shares are rising today after the company reported earnings last night after the close. Bare posted a third-quarter profit of $22.6 million, or 24 cents per share, topping analysts' estimates of 21 cents per share. This was a darling stock back in late 2006 and early 2007, but got crushed when the bear market fell apart and consumers were no longer interested in paying premium prices for cosmetics. However, the stock roared back recently as hopes for a strong recovery grow. If you think that the stock could regain its trendy status and won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BARE.

BARE opened this morning at $13.38. So far today the stock has hit a low of $13.24 and a high of $14.54. As of 11:45, BARE is trading at $13.95 up $1.46 (11.7%). The chart for BARE looks neutral and S&P gives BARE a neutral 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider a March bull-put credit spread below the $10 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in less than five months as long as BARE is above $10 at March expiration. BARE would have to fall by more than 29% before we would start to lose money. Learn more about this type of trade here.

BARE has not been below $10 since early September and has shown support around $11 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BARE.

Tags: Bare, Bare Escentuals, BareEscentuals, earnings, inthenews, Investors Observer, InvestorsObserver, options

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Last updated: November 22, 2009: 12:04 AM

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