Shoe stock Crocs, Inc. (CROX) has been fairly resilient amid the broad-market mayhem recently. Shares staged a substantial bear gap after a poorly received earnings report in late February, CROX rallied back fast and hard, says Elizabeth Harrow of Schaeffer’s Research.
CROX rallied after a successful test of support at its 80-day moving average and the $12 level -- which marks a double of its April-May 2017 lows.
In fact, CROX is fresh off a new two-year high north of $15 per share, and a compelling volatility signal from Schaeffer's Quantitative Analyst Rocky White suggests it's not too late to buy into the rally.
Specifically, at the same time that Crocs shares are barreling to new price peaks, the Schaeffer's Volatility Index (SVI) -- a measure of front-month option volatility premiums – for the equity is docked at a low 37.4%, in the 7th percentile of its annual range. In other words, front-month at-the-money CROX options have priced in lower volatility expectations only 7% of the time in the past year.
As a general rule, lower volatility premiums are a major plus for option buyers. When options are pricing in relatively modest implied volatility levels, it reduces the cost of entry on the trade, limits exposure to time decay, and enhances the leverage on a favorable stock move. But in the case of CROX right now, previous such "low volatility/high stock price" combos have been solid buy signals.
There have been just two other occasions since 2008 where CROX has traded within 2% of a 52-week high at the same time that its SVI ranks in the 10th annual percentile or below. Looking out one month after these past two signals, the stock was higher both times, with an average return of 6.39% over that time frame.
This time around, short-covering support could help CROX extend its post-signal winning streak.
Short interest fell by 8.7% in the most recent reporting period but still accounts for a respectable 9.1% of the equity's float. At CROX's average daily trading volume, it would take nearly a week for all of these bearish bets to be repurchased -- pointing to ample sideline buying power to support further gains... particularly with the stock in territory it hasn't explored since the second half of 2015.
Against this backdrop, now looks like a prime time to bet on additional upside for CROX via short-term call options.
