Weekend Trader Series
November 6, 2022
Open Positions Update
There are no portfolio updates this week.The following is this week's recommendation:
Crocs (CROX)Place a limit order to buy the Crocs (CROX) January 20, 2023 70-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, November 4, this option was offered at $20. CROX closed at $85.38 on Friday, November 4.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, December 5, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Crocs (CROX) is enjoying tailwinds after a third-quarter earnings and revenue beat. This summer, the shares pulled back to their 60-month moving average, before crossing above the 12-month trendline earlier this month. This pattern is similar to what we saw in 2020, with the 12-month moving average crossover eventually leading to outsized gains for the security.
What’s more, there was follow-through buying after the security’s last positive reaction in late October, and the shares are now above the $77 mark, which was a breakdown level in August from a trendline connecting higher lows. This level is also the site of CROX’s previous post-earnings reaction, and a retake of this region could squeeze out shorts. With the equity now above a potential trendline of resistance connecting prior three-weeks highs, it looks like an ideal time to speculate on CROX’s next moves with calls.
It’s also worth noting short interest has increased 60% since March. Using the 150-day moving average as proxy for average shorted price, shorts are underwater at around $64. This suggests shorts could begin covering into the end of the year. Our recommended January 2023 70-strike call has a leverage ratio of 3.5 and will double in value on a 27.4% pop in the underlying shares.
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