בס״ד

CASHING OUT! Market Weakness Delivers Wham-Doggy Profits! (CROX,NVDA)

Posted on October 29, 2020

We start with the bank.

On September 22nd we opened an Nvidia trade, all the details of which can be found here.

In a word, we’re now owners of the long October 30th 565/525 PUT spread for a debit of $27.55.

And today?

We’re closing her out.

The long 565 PUT is worth $58.75 and the 525 goes for $21.90.  Sell the first and buy back the second, and you take home a very plump profit of $9.30 on a $27.55 outlay.

Now get on with your fluting…

By the way, if you want to leave the trade until Friday’s close, you may pocket the full $40 spread.

Or you may not.

———————————————————–

Today’s trade is a play on Crocs Inc. (NASDAQ:CROX), makers of molded, slip-on, moderately toxic footwear for the leisurely-minded consumer.

Problem is the stock price has come unbuckled of late.

And even though she’s managed to trod the latest market downdraft extremely well, we believe the resilience will be short-lived.

Let’s start with her weekly chart –

CROX rebounded off her Batflu bottom to the tune of 560%, a number that should make you blink, at least.

In so doing,

  • She left a large gap in the $27.50 range (in red),
  • Pulled too far from her natural growth trajectory (in black),
  • And tickled the weekly overbought RSI 80 line for the second time this year (in green).

The last time she got this “high”, the results were catastrophic.

We believe the coming pullback will also be significant.

Consider, too –

The shares carry a P/E of 30.2,

A Price to Book ratio of 23, and

Offer no dividend.

Not what you’d call an invitation to buy.

Here’s the daily chart going back to March, and, again, we urge you to pay attention to the overbought RSI reading in green (at bottom) –

With two overbought 80 touches in the last two weeks, CROX stock is now officially sole-less.

And without that leathery life support in place, we see a decline in the making that will bring her to at least $37, her first, simple Fibonacci retracement level, if not lower.

And we’re playing it with overlapping spreads – selling a CALL spread to buy a PUT spread.

And it goes like this –

A Jew and His Gold recommends you consider selling the CROX November 20th 49/55 CALL spread for $3.15 (6.10/2.95) and using the funds to purchase the CROX November 20th 55/47 PUT spread for $3.35 (4.10/0.75).  Total debit on the trade is $0.20.

Rationale: expecting a decline in CROX shares means a PUT spread is a straightforward play.

But paying for it is (always) a problem.

So we’re selling the CALL spread to all but eliminate an opening debit.

Our maximum profit arrives if CROX closes below 47, and our maximum loss occurs if she closes above 55.  In between, we have a variety of outcomes, as the spreads are overlapping.

Breakeven for the trade arrives at $51.90 (price is currently $53.93).

Maximum gain is $7.80.

Maximum loss is $6.20.

Many happy returns!

Matt McAbby

 

Leave a Reply

Your email address will not be published.