Tuesday, May 1, 2012

The Developing Story of Crocs - You Have an Option

Like any other growth company that started life as a fad, Crocs has its share of detractors and supporters.  The detractors are sure that the company is still just a fad, based on the sales of their fad product, and the next quarter holds certain ruin, so "Sell, Sell, Sell!".  The supporters may wear the shoes, have read and understand the company's financial documents, and see tons of potential in all those Croslite-shod feet worldwide.

I've undeniably thrown in with the latter crowd, with both equity and several different OTM calls (Jun12 at $21, Jan13 at $35 and $45). I've been long Crocs since mid-2008 when the freefall was still in effect, and have been reading positive things from the quarterly & annual reports all the way back up from the depths. Matt Andrejczak has good points from the recent quarterly report in his article "Crocs should quit quarterly outlooks: Hodges Capital", and he soberly points up some of the reasons why the equity tanked immediately following the report.

Ideally, you know, people should just sit on an equity position, like CROX, through thick and thin while Mr. Market sorts out just when the reality of an increasingly valuable company should be priced per it's value.  But we're all impatient for the quick profit, which is why I'm sure options were created.  While the underlying equity goes up or down a couple of percent, the options can move much faster, netting a profit (or loss) for the cautious, wary options fisherperson.

But Rocco Pendola, writing at TheStreet.com, really sums up the option strategy (game) in the title of his article "You Can Lose It All With Apple Options".  If you're truly not equal to losing your entire investment very quickly--as Call holders found with both CROX and AAPL over the past week--then you need to re-evaluate your use of options.  If people are messaging you asking when the best time is to exit a position, then they're no better situated than Croesus, king of Lydia, when he got the prognostication from the Oracle of Delphi "If you cross the river, a great empire will be destroyed."


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