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Crocs Skeptics See More Downside Ahead

CROX speculators scooped up soon-to-be front-month puts

by 1/17/2013 9:08 AM
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The shares of Crocs, Inc. (NASDAQ:CROX - 14.19) gapped notably lower on Wednesday, attracting a crop of fresh option bears. During the course of the session, the shoemaker saw nearly 7,200 put options change hands -- about eight times its average daily put volume. For comparison, just over 6,200 CROX calls were exchanged.

Digging deeper, it looks like skeptics established new positions at the February 13 put, which saw open interest soar by more than 850 contracts overnight -- the most of any strike. Plus, 97% of the soon-to-be front-month puts crossed at the ask price, hinting at buyer-driven volume.

By purchasing the puts to open, the buyers are expecting CROX to extend yesterday's retreat to beyond the $13 level. More specifically, the puts traded at a volume-weighted average price (VWAP) of $0.15, meaning the buyers will reap a reward if the stock breaches the $12.85 level (strike minus VWAP) by the closing bell on Friday, Feb. 15, when the puts expire. However, even if the puts stay out of the money, the most the buyers can lose is the initial premium paid for the options.

From a sentiment standpoint, yesterday's appetite for bearish bets runs counter to the recent trend seen on the major options exchanges. During the past two weeks, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than 14 CROX calls for every put. In fact, the stock's 10-day call/put volume ratio of 14.08 stands higher than 87% of all other readings of the past year, suggesting options speculators are initiating bullish bets over bearish at a faster-than-usual clip.

However, yesterday's shift in sentiment isn't too surprising, considering CROX fell nearly 10% on concerns about the company's backlog. While the firm reiterated its fourth-quarter revenue guidance, Sterne Agee noted that CROX's backlog of 15% for the first six months of 2013 is at the low end of previous guidance for 15% to 18%.

Ahead of the bell, the shares of CROX are pointed fractionally higher, but upward momentum could stall in the form of the stock's 10-day and 20-day moving averages, which were breached yesterday for the first time since Dec. 26.


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