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Crocs Bulls Place Their Bets Just Ahead of Earnings

Front-month call players swoop down upon CROX

by 10/24/2012 2:26 PM
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As Crocs, Inc. (NASDAQ:CROX - 16.00) prepares to reveal third-quarter earnings after the close, the stock has seen a bounty of bullish options activity today. Close to 3,300 calls have been exchanged so far, which is more than five times the equity's expected intraday call volume.

The November 16 strike appears to be getting the most play, with more than 1,500 calls changing hands -- about three-quarters of them at the ask price, pointing to buyer-fueled volume. Specifically, these at-the-money contracts crossed at a volume-weight average price (VWAP) of $1.10. Since this strike currently holds open interest of just 684 calls -- along with the fact that implied volatility has climbed 6.6 percentage points today -- it's very likely that new positions are being established here. Essentially, by purchasing these calls to open, speculators are counting on the stock to rise north of $17.10 (strike price plus VWAP) by Nov. 16, which is when front-month options expire.

This penchant for calls over puts is more of the same for CROX. During the past month, traders have bought to open nearly two calls for every put, according to the stock's 20-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.73. As a result, Schaeffer's put/call open interest ratio (SOIR) for CROX stands at 0.58, indicating calls almost double puts among options expiring in the next three months. However, this ratio ranks in the 66th annual percentile, meaning near-term traders are actually more put-heavy than usual toward the security.

Elsewhere, although short interest on the footwear manufacturer fell by about 13% during the last two reporting periods, these bearish plays still account for more than 6% of CROX's available float. In fact, it would take more than four days to cover these shorted shares, at the stock's average pace of trading. This could mean that some of the aforementioned buy-to-open call activity is attributable to skeptics looking to hedge their pessimistic positions.

Sentiment toward CROX -- which has advanced more than 8% year-to-date -- is bullishly skewed among the brokerage bunch. The equity sports five "strong buys" and one "buy" rating, versus three "holds" and not a single "sell" recommendation. Furthermore, the stock's average 12-month price target sits at $23.57, representing a 43.6% premium to Tuesday's closing price of $16.41.

As previously noted, CROX is due to post quarterly earnings after the closing bell, and has bested consensus bottom-line projections in each of the past four quarters. Currently, analysts are calling for a profit of 43 cents per share. If CROX manages to pull off yet another earnings win, today's call players could end up realizing a profit on their bullish bets.


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