Here’s how I’m trading Ulta Beauty ($ULTA) and Veeva ($VEEV). (August 28, 2019)THERE IS A CRACKLE IN TONIGHT’S VIDEOS. OUR APOLOGIES. NOT SURE WHAT THE ISSUE IS WITH THE SOFTWARE BUT WE WILL FIX IT TONIGHT SO THERE WILL NOT BE AN ISSUE TOMORROW.
I want to show you a couple of stocks here. First of all Ulta ( NASDAQ: ULTA ). The reason is, the company reports earnings tomorrow and looking at the options market the implied move is $24.00. That puts it up to around 344.00 on the upside and about 316.00 on the downside. That’s important because it helps you manage your risk. That’s like what the market implies the stock can move, kind of like a maximum move.
What you can take away from that, from trading, is that the options market tends to be pretty right on this stuff, sometimes not, but generally speaking it is an efficient market. So if the stock gaps down below 316.00, especially if it is a big gap down, you can look for that to snap back and that’s a trade. Because you look and say, “Wait a minute, the market says the downside is about 316.00 and the stock opened up at 310.00.” So I would be biased towards either buying the stock or if you held the stock over earnings and you are angry don’t sell it at 310.00. Instead, just wait and let it kind of lift back within the implied move.
On the other hand, if the stock gaps up, let’s say it gaps up to 350.00, don’t buy that stock. You shouldn’t be buying it anyway if it gaps up that much. Don’t buy the stock because it’s above the upper limit as specified by the options market so you are probably going to be making a losing trade. So I look at these implied moves to give me these ranges. And also I think, okay, if the market moves up to the max where is that going to put the stock? It puts the stock here right at the 50-day moving average, which is likely to be where sellers are.
On the other hand, if the stock moves down to 316.00, that is the low end of the range, it puts it right back at this particular level here, which is where the buyers are. So I think that the better trade is just to wait until after earnings and then trade what the stock actually does as opposed to trying to predict what it’s going to do.
Then, the only reason I am showing this is that I mentioned it on Twitter. I said I would talk about it so I added Veeva ( NYSE: VEEV ) to our Growth Stock List today, that’s what we put it on. It had kind of a wild day today but support now is 155.00 we’ll call it, something like that. I am already in and I can’t buy any lower because that is not my discipline; but if the stock starts moving higher, that’s when I will add to that position. In the meantime, I am just going to kind of sit with what I have and wait.