On balance, yesterday’s economic news wasn’t terrible. 

Q4 GDP growth was revised to 2.4%, and pending home sales grew 2.0% month-over-month in February, 110 basis points higher than the estimate. 

Today, we’ve got the U.S. core PCR (personal consumption expenditures) price index on tap. As I’m writing this before the opening, I can’t say what it is, but economist estimates put February inflation up 0.3% from January and 2.7% higher than a year ago. 

If the inflation number exceeds the estimate, it is bound to rankle investors. It won’t help that the University of Michigan U.S. Consumer Sentiment Index is also out today. The economist estimate is 57.9 in March, down from 64.7 in February. For context, the index hasn’t been this low since November 2022. In June 2022, it hit 50, the lowest level in the past decade. 

Anything significantly lower than the estimate should increase today’s trading volatility. And away we go. 

In yesterday’s unusual options activity, 1,326 had Vol/OI ratios of 1.24 or greater and expire in seven days or longer, with 695 calls and 631 puts. Reasonably-priced beauty products purveyor e.l.f. Beauty (ELF) had one unusually active option but made it count, with the 11th-highest Vol/OI ratio at 22.75. 

ELF stock has fallen 71% since hitting an all-time high of $221.83 on March 4, 2024. If you remain hopeful that the one-time momentum play can regain its mojo, here are two ways to play this unusually active put. 

Have an excellent weekend.

Is e.l.f. Beauty Investable?

Before considering the two options strategies for ELF stock, it's essential to consider whether you should consider this kind of stock in such an uncertain economic environment. 

Like any good investor, it’s important to start your assessment of any options play with a quick analysis of the company facts, both fundamental and anecdotal. Once I’ve completed this, I’ll move on to the three options strategies to play this down-on-its-luck consumer discretionary stock. 

The company’s financials are good. 

It has delivered 24 consecutive quarters of net sales growth and has taken market share. Through the first nine months of fiscal 2025, its sales have grown 40% over 2024 to $981 million; it expects to finish the fiscal year (March year-end) with $1.305 billion at the midpoint of its guidance, down slightly from its previous outlook of $1.325 billion.  

On the bottom line, it generated an adjusted net income of $152.3 million in the first nine months of the fiscal year, down slightly from $152.9 million a year earlier. Its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) through Q3 2025 was $215.5 million, up 11.2% from a year ago. On a GAAP basis, which you should always respect, it earned $83.8 million, down from $113.1 million a year earlier, due to higher stock-based compensation. 

The important thing is that it’s profitable and growing sales and market share. Further, the company’s total debt as of Dec. 31 was $310.2 million, just 8.4% of its market cap. It also has cash and cash equivalents of nearly $74 million, so its balance sheet is sound. 

From a margin perspective, its EBIT (earnings before interest and taxes) has fallen to 10.1% from 15.0% at the end of fiscal 2024 and 11.8% in fiscal 2023. It has a healthy gross margin (71.1%), the highest it’s ever been, so that’s a positive indicator. Just continue to watch that. 

From a valuation perspective, its enterprise value of $7.75 billion is 4.12 times its last 12 months' revenue, according to S&P Global Market Intelligence, the lowest multiple since June 2022 and September 2020 before that. 

The one thing to know is that it has found itself in the crosshairs of short seller Muddy Waters. In November, the short seller published a report arguing that the company inflated its revenue by up to $190 million between Q2 2024 and Q4 2024. That has led to class action lawsuits. 

While the company has denied the sourcing issue was an attempt to inflate revenues, it remains a lingering concern. 

Generally, these issues get sorted, and the ambulance chasers go away. Still, if you’re concerned about drawn-out legal battles acting as a headwind to its stock price, you probably shouldn’t consider these three options strategies. 

The Naked Put Provides Decent Income But No Upside

The naked put is when you sell the put for premium income with no position covering the put like you would have with a covered call. This play is purely for income. There is no benefit if the stock returns to $221 over the next 10.5 months. 

The $5.65 bid price on the Jan. 16/2026 $45 put is a return of 14.4% and an annual return of 17.8% [$5.65 bid price / $45 strike price - $5.65 bid price].

The downside of this strategy is that the potential loss is unlimited. If the short seller turns out to be correct and there are other accounting irregularities, you can bet the stock would trade below $45 in rapid order. 

I’m not saying it will happen, but the risk is unlimited.

The Bull Put Spread Is the Logical Next Step

The bull put spread is used when you expect e.l.f. Beauty’s share price will move higher over the next 296 days. Given its ongoing sales growth and a much more attractive valuation than a year ago, news that the short seller’s report was meritless would send the stock higher. 

How much would depend on the next few months and the negative effect of tariffs on the U.S. economy?  

The bull put option strategy involves selling a put option and buying a put option at a lower strike price and the same expiration date. Here is the Jan. 16/2026 $45 put below.

The maximum profit on this bet is a net credit of $1.30 [$5.65 bid price - $4.35 ask price]. The maximum loss is $3.70 [$45 strike price - $40 strike price - $1.30 maximum profit]. The strategy is successful if the share price at expiration is above $43.70. The odds of this bet being successful are 73.4%. 

If you’re risk-averse, this bet is much safer than the naked put for income.

The Long Straddle Won’t Fly 

I considered a third strategy: the long straddle, which involves buying a call and put at the same strike price. In this case, it’s $45. The expiration date is the same for both. 

Here is the $45 call. 

Here is the $45 put. 

In this case, you expect increased volatility, with the share price moving significantly higher or lower. The IV rank is 30.77%, which suggests its current volatility isn’t high, and that could work against you. 

That’s because you want the share price to trade above the upside or downside breakeven. In this instance, the upside breakeven is $79.45 [$28.45 call ask price + $6.00 put ask price + $45 strike price], and the downside breakeven is $10.55 [$45 strike price - $28.45 call ask price - $6.00 put ask price]. 

That’s a lot of ground to cover in either direction. You’d want to go with a higher strike price to have a hope of making money on the trade.