Decoding Smart Money Moves: What Big Options Activity on Ulta Beauty Reveals for 2026

The options market for Ulta Beauty (ULTA) has become a battleground of competing narratives as 2026 approaches. While the stock's fundamentals-driven by strategic initiatives like "Ulta Beauty Unleashed" and international expansion-suggest a bullish trajectory, institutional options activity reveals a more nuanced story. A surge in put options and high implied volatility (IV) indicate that some market participants are hedging against downside risks, even as others bet aggressively on further gains. This duality offers a window into the contrarian positioning shaping ULTA's 2026 outlook.

The Bullish Consensus and Its Foundations

Ulta Beauty's recent performance has been nothing short of stellar. Q3 2025 earnings reported a 12.9% year-over-year revenue increase and an EPS of $5.14, bolstering confidence in its operational resilience . The company's pivot to high-margin standalone stores and expansion into Mexico under new CEO Kecia Steelman has further solidified its growth narrative . Analysts project a consensus price target of $634.28, implying significant upside potential.

This optimism is reflected in options data. The put/call ratio by volume stands at 0.69, while the open interest ratio is 0.91, both signaling robust demand for call options. Institutional investors are clearly leaning into the bullish thesis, with call options at the $550 strike price in January 2026 expirations attracting attention. Selling these calls at a bid of $24.80 allows investors to lock in a 4.60% return if the stock remains below $550, a scenario with a 50% probability of occurring .

Contrarian Signals in the Put Market

Yet beneath this bullish surface, a bearish undercurrent persists. The put/call ratio by open interest has spiked to 1.32, a stark contrast to the volume-based ratio. This discrepancy suggests that while retail and institutional investors are buying calls, larger players are accumulating puts for downside protection. The $530 put option in January 2026, for instance, has drawn significant institutional interest. With a bid of $20.30, this out-of-the-money put offers a 3.83% return if ULTA fails to breach $530-a 60% probability .

Such positioning is not merely defensive. It reflects a strategic bet on volatility. The IV for ULTA options is currently 37.1%, with an IV percentile of 73%, meaning premiums are historically expensive. This suggests that market participants expect sharp price swings, possibly driven by earnings reports, leadership transitions, or macroeconomic shifts. The fact that puts are being bought at out-of-the-money strikes indicates a focus on hedging rather than outright bearishness-a key distinction for contrarian investors.

Institutional Block Trades and Strategic Divergence

Large-volume block trades in January 2026 options further complicate the picture. A notable put contract at the $610 strike price saw a single-day volume of 13 contracts, far exceeding its open interest of 23 . This suggests that institutions are layering in protection at higher price levels, anticipating a potential correction even as the stock trades near all-time highs. Conversely, call activity at the $600 strike-though modest-hints at a minority betting on a breakout above current levels.

The divergence between index-level and single-stock volatility also plays a role. As hedge funds increasingly adopt dispersion trades (betting on muted index volatility but high single-stock volatility), ULTA's elevated IV becomes a focal point . Contrarians, however, are exploiting this imbalance by shorting index volatility while buying ULTA puts, a strategy that profits if the stock's volatility outpaces the broader market.

Implications for 2026

The interplay of these forces creates a paradox: ULTA's fundamentals point to sustained growth, yet its options market suggests caution. For investors, this duality offers two paths. The bullish case remains intact, supported by strong earnings, strategic clarity, and a rationalized competitive landscape. However, the contrarian angle-rooted in elevated put activity and high IV-urges prudence.

A key risk lies in the crowded nature of the bullish consensus. As of late 2025, ULTA is among the most shorted stocks in the retail sector, with institutional short interest concentrated in out-of-the-money puts . If the stock experiences a sharp pullback-triggered by macroeconomic headwinds or earnings misses-these positions could amplify downward pressure. Conversely, a continuation of the current rally would render the put-heavy positioning a buying opportunity for long-term investors.

Conclusion

Ulta Beauty's options market in 2026 is a microcosm of broader market dynamics. While the company's fundamentals justify optimism, the contrarian signals embedded in institutional options activity-particularly the surge in puts and elevated IV-serve as a reminder of the risks inherent in crowded trades. For investors, the lesson is clear: the path to outperformance lies not in blindly following the consensus but in dissecting the smart money's hedging strategies and volatility expectations. As 2026 unfolds, the true test will be whether ULTA can navigate these crosscurrents without sacrificing its upward momentum.