Traders Are Bullish on BARE

Bare Escentuals, Inc. (BARE) shares may be rising ahead of earnings after-hours, but the options market is the real story of the day. The 15 August ‘08 puts, with only 16 days until expiration, were heavily traded Wednesday with some 9,055 contracts changing hands. Typically, this is a bearish sign, but the open interest on these options has declined while premiums plummeted. This suggests that many traders are abandoning their put positions ahead of earnings - a bullish sign for BARE.

Other key indicators, like insider trading, also points to a bullish sentiment. Insider trading over the past three months shows a net acquisition of over $18,000 worth of shares in the company, but without any buying or selling for the past month. Shares in the troubled company have also been picked up by institutional investors like Growth Portfolio, Lotsoff Capital Management, and Texas Capital Bancshares. Such buying by institutions and insiders is a typically bullish signal.

Bare Escentuals and other specialty retailers have been struggling with a sharp decline in consumer discretionary spending. Sharp drops in the housing market have led to fewer home equity loans, which forced many consumers to tighten their spending. The economic stimulus package has provided a brief break from the drop, but economists are divided as to how long the benefits will last. Combined, this news has many investors bearish on the retail sector.

Bare Escentuals develops, markets and sells cosmetic, skin care and body care products under its bareMinerals, bareVitamins, RareMinterals, i.d. and namesake Bare Escentuals brands, and professional skin care products under its md formulations brand. The firm’s bareMinerals-branded products include its core foundation products and a variety of eye, lip and complexion products, such as blushes, all-over-face colors, liner shadows, eyeshadows and lip colors.

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