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Crocs May Look Due for a Bounce

CROX is attracting soon-to-be front-month call buyers

by 7/18/2012 11:16 AM
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Call players are congregating around Crocs, Inc (NASDAQ:CROX - 14.74) today, after the company formally announced its earnings-release date of Wednesday, July 25. At last check, the shoemaker has seen nearly 5,400 calls change hands -- about 14 times its average intraday call volume. On the flip side, fewer than 500 CROX puts have traded thus far.

Digging deeper, most of the action has centered on the near-the-money August 14 and 15 calls, which have seen about 1,900 and 2,000 contracts cross the tape, respectively. Volume has exceeded open interest at both strikes, and nearly all of the calls have traded at the ask price, pointing to buy-to-open activity.

By purchasing the calls to open, the buyers are betting on CROX to muscle north of the strikes within the options' lifetime. And, since Crocs earnings will be reported after July-dated options expire, it makes sense to assume that at least some of today's action consists of earnings-related bets.

Broadening our sentiment scope, we find that CROX calls have been flying off the shelves even before today. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security sports a 10-day call/put volume ratio of 7.19, indicating that traders have bought to open more than seven CROX calls for every put during the past two weeks. Furthermore, this ratio stands higher than 73% of all others of the past year, hinting at a healthier-than-usual appetite for bullish bets over bearish of late.

Echoing that optimism, CROX boasts twice as many "strong buy" endorsements than "hold" ratings from the analyst crowd, with not a single "sell" recommendation to be found. In the same vein, the consensus 12-month price target on the security rests at a lofty $24.89, representing a premium of 76% to CROX's closing price of $14.14 on Tuesday.

However, the optimism surrounding CROX seems somewhat out of place when juxtaposed against the stock's chart. The equity has surrendered 45% over the past year, with rebound attempts halted by resistance at its 10-week and 50-week moving averages. Now, the stock is trading just north of its annual low of $13.80 -- tagged just last week -- and is clinging to support in the $14 neighborhood, which contained CROX's pullbacks in late 2011 and early 2012.

Should CROX report weaker-than-expected earnings next week, a reversal in sentiment in the options arena, or a wave of downbeat analyst attention, could translate into contrarian headwinds for the stock.

Weekly Chart of CROX since September 2011 With 10-Week and 50-Week Moving Averages


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