Hot Market or Sitting on Your Hands?

This market sucks.  And that's why I love the markets so much...sometimes they encourage you to go read a long non-business book, play a PopCap.com game, or take a long hike with your kids.

For reading, I've been reading J. M. Barrie's Peter Pan to the kids for bedtime reading.  It's free via the iBook store, and it's a cool un-adapted-for-new-audiences story. For PopCap I'm stuck on Plants vs. Zombies, a delightfully maddening title which can be a source of wasted hours...or a rapid training ground for young minds eager to unknowingly learn the military arts of asset allocation, supply logistics and battlefield strategy (that's how I explain it to the boy's Mom... ;-).  And finally, hiking, well heck, its Summer!

Personally, with the markets, I'm finally in a holding pattern.  No buying, no selling...and it's about time too.  I've been way too "day trader" (though, not really), and not enough Berkshire Hathaway buy-and-hold.  All my options have months before expiration (hopefully that's good), and stocks are locked down to the bare essentials: FB -- I bought in a 43, but kept buying down, so that I'm about even now -- and CROX, which I've considered a long-term holding in a fairly sound globally-based retail gamble.

Now, having said that, I asked my friend what he thought of things - here's what he said:

me:  What's the hottest game in this market? new housing? or sitting on one's hands? :-)
he:  companies that are mainly in u.s. markets that provide dividends.
me:  may I quote you on that for this hot little finance blog I'm helping with? (I won't use names...)
he:  sure
he:  what's the link?
me:  you may have heard of it:  http://swansandcrows.blogspot.com
he:  hmm
he:  i've heard about them somewhere.....

What do you think - are American dividend plays where all the actions at, or housing (as new home sales were up a bit for May), or AAPL (not RIMM), or nothing at all, sitting on your hands? Leave a comment, let us know.

..TS.

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."

..TS.

Tolkien Gold

"All that is gold does not glitter,
Not all those who wander are lost;"

In his classic tale of travel and travails, J.R.R Tolkien teaches the reader many things, not the least of which is how to seek value amongst a seeming cornucopia of treasures.  While gold appears to be the safe haven in these hard times, perhaps it's not the treasure that will serve you best.  Hardworking companies like AAPL and CROX are building both cash and global brands which, while they won't outlive gold, they will appreciate over the coming years much more readily.  Are you ready to limit yourself with the yellow metal, or are you open to far better vehicles for the road?

Consider a contrarian investment such as out-of-the-money GLD Puts as the appreciation of gold accelerates.

[PUT (GLD) SPDR GOLD TR GOLD JAN 21 12 $140 (100 SHS)]

..TS.

Don't Panic

Don't panic, folks.

While today may not be the time to jump in on new lows, the next few weeks will be a learning experience for us all.  Corporate earnings will still reign supreme, though we'll be distracted by political intrigue left and right.  If cash is king, look to large ($AAPL) and small ($CROX) cash holders to comfortably lead the way forward, after initial panicky stumbles.

..TS.

Series 56 Exam Not Needed to Buy $CROX

[guest post by TS]

My brother in blogging crime wondered whether we needed to take this Series 56 Exam everyone was talking about: "can't enter orders after september if you don't take the series 56 exam?"

Relax, bro', methinks this is not for the retail investor:

Specifically, CBOE Rule 3.6A provides that individual Trading Permit Holders and individual associated persons that are engaged or to be engaged in the securities business of a Trading Permit Holder or TPH organization shall be registered with the Exchange in the category of registration appropriate to the function to be performed as prescribed by the Exchange."

"Trading Permit Holders and associated persons", in my estimation (correct me if I'm wrong) would be trading houses constituted specifically for the purpose of making money off of house and/or client's assets, in a professional securities organization.  As retail investors generally have an unrelated day job, this would not impact them.  Many of us bloggers (though, certainly not all), reside in that camp.

So, go out and buy more $CROX equities, calls, etc.  :-)

..TS.

But we wish everyone luck that must take it..... MM

Distributing $CROX

[guest post by TS]

Reading, Reading, Reading, and a wee bit of watching. That's the life of a speculator.

You read that right: speculator.  And proud of it. An investor makes careful, well-thought-out, mathematically enforceable/supportable decisions for long-term purchases, and will not back out of a purchase without careful deliberation.  I'm no such beast.  In the air of the Victor Niederhoffer I learned of via his autobiographical The Education of a Speculator, I make snap decisions in an effort, using knowledge gleaned from dozens of sources, to augment the fortunes of my descendants--my success is ongoing.  Niederhoffer's book was in fact at the top of my summer reading list two summers ago.

Having said that, it's difficult for the average person to look at a company like Crocs, Inc. and see a global company.  What they see are the Beach and Cayman (Classic) bright-colored Croslite shoes on the feet of their kids, not a strongly positioned global retailer.  They are clearly not, unlike you and me, reading the source material available at SEC.gov.  I found the following in the 10-K, filed on 2011-02-25, which gives some clue to the global distribution of Croc's products:

Location		Use		Approximate Square Feet
Ontario, California		Warehouse			399,000
Narita, Japan(1)		Warehouse			289,000
Aurora, Colorado(2)		Warehouse			264,000
Leon, Mexico		Manufacturing/offices			226,000
Leon, Mexico		Warehouse/offices			214,000
Rotterdam, the Netherlands		Warehouse			183,000
Shanghai, China		Warehouse			76,000
Niwot, Colorado		Corporate headquarters			69,000
Niwot, Colorado		Regional offices			60,000
Tampere, Finland(3)		Warehouse/offices			60,000
Melbourne, Australia		Warehouse			48,000
Shenzen, China		Manufacturing/offices			32,000
Den Haag, the Netherlands		Regional offices			27,000
Padova, Italy		EXO's Regional offices/manufacturing facility			28,000
Singapore		Regional offices			26,000
Gordon's Bay, South Africa		Warehouse/offices			24,000
Niwot, Colorado		Warehouse			15,000
Shanghai, China		Regional offices			13,000

Distribution does not a successful brand make, but it does help with getting product in front of the buying public to replenish supplies that are moving off the shelves.  What other small companies are similarly seeking a global footprint to enhance their long-term survival?

..TS.

Hurry Up and Wait Please

Photo by Karina Gerbst

My patience on Sketcher's (SKX) seems to be working. It was up nicely yesterday. The news from Nike (NKE) , Crocs (CROX), Timberland(TBL) et al are boosting interest in this sector.

Sketchers is a battered down value stock. Other than defining the idiom "A rising tide lifts all boats", what else is happening here? Well, I do see change. Sketcher's main customer Brown Shoe (BWS) had a good earnings report last week. I hope this is a sign that the stuffed inventory channels are thinning out. Sketcher's has its own e-commerce shoe website. Its shoe prices for their "Toner shoes" seem to have come down slightly. I am hoping that their new pricing is the adjustment needed to boost demand. Looking at the upcoming seasons, the "Back-To-School" and Christmas sales will help tremendously.

Sketcher's is the only publicly traded company that sells the "Toner Shoe" style. Reebok & Asics are the other main sources of this style of shoe and are privately owned. If you want a stake in this new market and you're not Warren Buffet who can buy the whole company when he likes an equity, then SKX is your only choice.


 The controversy seems to be that Sketchers is now trying to enter and compete within the crowded fitness shoe arena. “Skechers Fitness has grown from a single style into a performance running line, training line, and an everyday toning line,” Skechers President Michael Greenberg said in a statement. "The apparel collection will build on the company’s Sketcher Fitness Footwear line, which now includes technical running shoes as well as styles designed for training and all-day wear." The new line is coming in 2012.

According to SeekingAlpha

Sketchers’ current attempt to expand the recognition of its brand into other realms of footwear may invariably diminish the perceived and/or actual focus of the brand on providing products appreciated by loyal consumers. Skateboarders and individuals who wear toning shoes appear, at least at first glance, to be unrelated groups of consumers....

How can you rate the current sentiment?
Comparing the current quarter earnings to last year's quarter, the results will be more of a measure of progress than an actual beat; However, the current consensus is that there will be vast improvement in the last half of the year.

The next earnings report is July 25th. Barring an early press release announcement, what could you use to read the current sentiment on SKX? The July 2011 options expire on July 15th, before the reporting period and the August 2011 options expire after the report.

Using the premise that an option straddle is a hedged bet composed of calls and puts can a price range be defined by the break-even points? I would like to experiment with a weighted blend of prices for a range of options for the next 30 days. Just like the VIX, would you be able to find a range of prices, and actually measure the incremental wisdom of the total crowd? The VIX volatility index is used by options traders to calculate options premiums (i.e. options prices), and also by S&P 500 traders to determine the expected daily range for the S&P 500 stock index and futures market. Only I would be doing it for one stock. The math may be over my head. Need to do more homework....

It seems to be a very volatile range. Prior to yesterday's run-up the range was quite different than this morning. But a simplified historical range of stock prices might be a more powerful piece to the puzzle that I thought.

Momentum Trading $CROX?

[guest post by TS]

Somebody-perhaps several somebody's-is/are expecting $CROX to hit 26 by July - they bought 500 $26 Calls at .55 - if it hits $26, they'll triple their money.

Before I could join the party, the contracts went up $.05... The July $25's have also just seen a bunch of activity.

Does this action qualify $CROX as a momo play?

..TS.

[Editors Note: as of market close on July 6th, the July 11 $26 call's are up 185%, closing with a bid of $1.70...the referenced traders on June 23rd have now slightly more than tripled their money.  CROX underlying closed today at $27.62.]
[2011-07-12: and right back down:
| 26.00 || CROX110716C00026000 || 0.70 || Down || 0.01 || 0.55 || 0.65 || 74 3,766 | ]

How Are You Wearing $CROX?

Whether you wear $CROX shoes or think they're the antithesis of any fashion sense is immaterial - what matters is: do you think the secondary market for the stock has any future?  I do, and have since the Fall of '08, when $CROX was bottoming out.  I had read the 10Q's and 10K's and saw nothing but strength and common sense in the management of this company.  People around me echoed the "ugly shoe" and "going bankrupt" mutterings that the company inevitably attracted, but they had not read the SEC filings, they had not seen the evidence of a rabid customer base and an expansionist new management structure.

While the stock has been the place to be over the past 28 months, the real glory has shined in the near- and long-term call options.  I'm currently positioned in a vertical spread involving strike prices at $20, $30 and $35 for the Jan 2012 calls.  While the $20's are nicely in the money (I seldom buy ITM, but it's nice to do periodically), the $30 & $35 will only pay off if $CROX appreciates significantly, which is in no way guaranteed.

Clearly, I'm not concerned about loss, merely about maximizing upside.  Is this too risk-tolerant for your portfolio?

..TS.

[Note/Quote 6/16/2011:
"WJB Capital's chennel checks indicate the new Crocs Chameleons are selling "like hotcakes." The analyst said the biggest concern is that the company didn't realize just how big of a hit they and and didn't make enough of them. Shares are Buy rated with a $26 price target."  ..TS.]

For Better or Worse, Crocs Reports Today

Crocs, Inc. provided this guidance in their 2010 Fourth Quarter 8K on February 24, 2011:

"For the first quarter of 2011, the Company expects revenue of approximately $215 million, a 29% increase over first quarter 2010 and gross margin is expected to be between 53% and 54% level.  The Company expects diluted earnings per share for the first quarter 2011 to be approximately $0.19. This guidance assumes an effective tax rate of 27% and outstanding diluted shares of approximately 91.0 million."

Will they beat this, and/or beat the street?  They need to, so as to show that their $1.9B market cap is not out of the ballpark for a company working its way from $600M/yr to $1B/yr.  They need to show that a company pilloried in 2007 for excess inventory and falling sales knows what it's doing in this challenging global marketplace.  Whether they will or won't is known only by those in the C-suite. But I think that CROX is a very happening company, has been for years, and will continue to be.  I am personally long with both equity and 2012 calls.

..TS.

Parabolic Metals

When you begin to see words like "parabolic" used to describe the run-up of an investment, ya gotta begin looking at the other side of the mountain.  How do you play the upside? How do you play the inevitable downside? And, of course, when will the downside occur?

The scorching run in silver has been even more impressive than that of gold, but now some traders are betting on a sharp reversal by year's end.

The iShares Silver Trust (NYSEArca:SLV) hit another new high this morning, currently up 1.65 percent on the day to $44.85. The exchange-traded fund, which was below $18 in August, found support at $26 in late January.  [ Large trade bets silver will reverse course ]

 Now, if you thought the ups and downs of tech stocks caused butterflies in your stomach, that's nothing compared to the Sopwith Camels that put and call options can generate, but the options market is the place to play both upside and downside.  There's nothing like the certainty of the final stages of a bubble in which to hone your understanding of when to use calls and when to use puts:  my puts on ZSL are perfectly weird example--profiting from the downward pressure of an inverse ETF caused by the upward pressure of the underlying commodity.

One thing to note about options: people spend oodles of time trying to figure out the bid/ask spreads to identify best in/out times, etc., and to identify the value of an option, being overly mindful of both time decay and intrinsic value, if any.  My advice: forget all that.  Just be aware that you'll generally buy in at the ask and sell at the bid. As soon as you buy, your option will be priced at the bid price, versus what you think you bought it for--the price gyrations of that bid price is what you're watching, not your buy-to-open price.  Also, unless you have the support of your convictions and the market be damned (like my OOTM leaps on CROX), consider buying options that others have clearly bought (based on open interest)... that way you know others have also considered the possible outcomes of the trade in question.

..TS.