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AppleOption

Excellent Crocs Trade (CROX)

Crocs has surely taken a beating lately. November 2007 this stock was trading at $70 and earlier this week it fell to $18. Are we at the low... the bottom?

We don't know for sure, but the 75% fall is significant enough to fell comfortable that we are close if not already there. In fact since the low on monday this stock are returned to $20+.

One can place the following Covered Call Trade on CROX which will yeild a 33% max return in the next 3 months. Find out more at AppleOption.com



Published Wednesday, March 12, 2008 10:13 PM by AppleOption
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Comments

 

Movie Guy said:

With high volatility options (i.e. CROX) it should be pointed out that one can write covered calls on in-the-money, at-the-money or out-of-the-money options.  This strategy outlined in this post suggests writing an out-of the money CROX option (June 26 call).  As of this writing, CROX is selling at about $20 a share, so a June 26 call will generate about $1.75 in premium.  That will make the strategy breakeven point $18.25.  Using the Zecco probability calculator, I calculated that there is about a 48% chance CROX will finish below $18.25 on June expiration.  So the promise of larger maximum gains has to be weighed against a 48% probability that the strategy will lose money.  In my opinion, covered call writing should appeal more to the risk adverse.  A more conservative play would be to write an in-the-money option (i.e. June 15 call).  Time-value premium taken in would be around $1.75.  Breakeven is $13.25.  With this strategy, there is approximately a 76% chance the shares will be called away (finish above $13.25) with a return of about 8.5%.  In other words:  respectable return with better downside protection.
March 13, 2008 12:07 PM
 

AppleOption said:

Point well taken. The second part of this trade should be a protective put. If you are looking for downward protection, there is no better way. Pick-up the $17.50 or the $20 April put to profit in the short term, if there is a major bull run then the next month lock in your gains with a second protective put.
March 19, 2008 3:24 AM
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