Crocs Options Bulls Just Won Big After Earnings

Plus, there was the potential for options-related support from October puts

Managing Editor
Nov 8, 2018 at 12:36 PM
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Subscribers to Schaeffer's Weekend Trader Alert service just scored a 153% profit in five weeks with the Crocs, Inc. (NASDAQ:CROX) December 17 call. Below, we're going to take a look back at why we were bullish on the footwear concern, and how CROX performed after we recommended the call option. 

When we entered the position on Monday, Oct. 8, the stock was sporting an impressive 12-month advance of nearly 100%, and had recently climbed to multi-year highs. Following a slight pullback, the shares were hovering near familiar support in the form of their 80-day moving average. Considering sentiment was still quite bearish, we expected CROX to rally from this bullish trendline, as bears continued to hit the exits.

The disrespect for CROX began in the analyst community, where just one of the six brokerage firms in coverage recommended buying the security. Moreover, the average 12-month price target among this group was below current trading levels, so the door remained wide open for upgrades and/or price-target hikes to come through, leaving the potential to provide more tailwinds.

Short interest was also very high, and accounted for almost 16% of the total float, which meant it would take more than nine days to cover, based on the average daily volume. Elsewhere, October options expiration was very put-heavy at the time, which hinted at potential options-related support going forward, as well.

Lastly, the stock held a Schaeffer's Volatility Index (SVI) of 42%, which sat in the 9th annual percentile. This revealed that low volatility expectations were being priced into near-term contracts.

Following our early October recommendation, the shares of Crocs stock climbed steadily higher, as traders braced for the company's third-quarter results. An impressive earnings beat was reported before the market opened this morning, Nov. 8, which sent the shares to a fresh seven-year high of $28.07. In other words, this noteworthy bull gap allowed CROX options traders to lock in a 153% profit within five weeks of our initial recommendation.

Daily Chart CROX with Entry Exit Dates

 

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