Sponsored By:

Bare Escentuals (BARE)

April 02, 2009

ACTION:

Buy the BARE June 5 Calls (URYFA) for 80 cents or less


Dear Fellow Options Traders,

Bare Escentuals (BARE) has been hit hard over the last year, down almost 85%. The U.S.-based cosmetics company stock was barely essential in any portfolio. During the past two weeks, however, market participants appear to be taking notice.

The stock is just under $5. Yesterday, institutional option traders bought 1,000 BARE June 5 Calls (URYFA). This activity increased the open interest in all of the calls by 50%. In the past, options flow has been very predictive in BARE. Short interest a year ago was 20% -- today, it is only 2.7%.

On Feb. 26, the company reported better-than-expected earnings and revenues but cut its first-quarter guidance sharply. With this earnings revision factored into estimates, analysts believe the company will earn 70 cents this year and 78 cents in 2010. The P/E on BARE's depressed earnings today is under seven-times.

To take advantage of this positive outlook, we recommend following the big money and "buying to open" the BARE June 5 Calls (URYFA) for 80 cents or less.

Given the predictive accuracy of institutional options flow in BARE historically, our recommendation is to go with the flow and buy the options that are being traded by the big money buyers.

Have a good day trading.


Nick Atkeson and Andrew Houghton
Editors
Options Trader