There are times when stocks are punished for an earnings miss, and then there are times when they are taken behind the woodshed and beaten to a bloody pulp.

Unfortunately for Crocs (NASDAQ:CROX) enthusiasts, the stock experienced a beating of the latter variety after pre-announcing disappointing earnings this week.

These types of monster gaps are the exact reason why shorter-term traders avoid holding into quarterly announcements.  While such an approach leads to missing out on the occasional favorable gap, it also means you won’t wake up one morning to an account-killing drop.

After the 42% haircut chopped off CROX’ share price in the last few days, there is opportunity for savvy investors to make money amid the rubble.  Provided CROX begins to show signs of strength or at least stabilizes, there could be a short put play in the cards.

Of the downside puts available for November expiration, the $13 and $14 strikes seem to offer the best risk/reward trade-off.

Selling out-of-the-money puts is an appealing alternative to buying the stock or call options at this juncture for two primary reasons.  First, it takes advantage of the elevated implied volatility, which is close to 52-week highs. Second, selling an out-of-the-money put sets up a high probability of profit that simply requires CROX to remain above the strike price of the put to realize the maximum reward.

If a trader were to sell the CROX Nov 13 Put for 60 cents, the max reward would be $60 and the breakeven would come out to $12.40.  This allows CROX to drop another 19% before the $13 put would be in a losing position at expiration.

Source:  MachTrader

At the time of this writing, Tyler Craig had no positions on CROX.