Filed under: Major movement, Earnings reports, Good news, Industry, Options, Technical Analysis, Crocs Inc (CROX)

CROCS Inc. (NASDAQ: CROX) is getting a boost today from competitor Deckers Outdoor Corp (NASDAQ: DECK), which is up over 20% this morning after smashing Q3 earnings estimates and upping their Q4 outlook. Where CROX makes ugly, trendy rubber footwear, DECK makes alternative, ugly, trendy UGG boots, so their fortunes may be similar, which is a good thing looking at this DECK quarter. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CROX.

CROCS stock has been strong all year, reaching a high of $72.40 last week. CROX opened this morning at $66.98. So far today the stock has hit a low of $65.47 and a high of $67.33. As of 10:45, CROX is trading at $66.93, up $2.42 (3.8%). The chart for CROX looks bullish but deteriorating slightly.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 3 months as long as CROX is above $40 at January expiration. CROCS would have to fall by more than 40% before we would start to lose money. Learn more about this type of trade here.

CROX hasn’t been below $40 since May and has shown support around $63 recently. This trade could be risky if the market for novelty shoes slows down, but that shows no signs yet and even if it happens, this position could be protected by strong support the stock found when it bounced off its 50-day moving average four times in the past 5 months.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in CROX or DECK.

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This entry was posted on Friday, October 26th, 2007 at 12:41 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.