Crocs (NASDAQ: CROX) reported earnings for the fourth quarter after the market close on Thursday. The shares were up almost 10% on the news during the after-hours trading session since the footwear company beat expectations by a wide margin. But let me tell you something: I cannot imagine any sane investor wanting to risk his hard-earned capital on this stock. The numbers are just too dismal.

Wall Street was bracing for a loss of $0.56 per share in the fourth quarter. Well, Crocs did much better than that. It lost only $0.40 per share. Great, right? Yeah. Let's look at the top line: it declined by 43%. Does that put the earnings beat in perspective? I sure hope it does. How about the fact that gross margin went down to 44% compared to 56% in the year-ago period -- does that also lend some context?

CROCS Inc. (NASDAQ: CROX) is getting a boost today from competitor Deckers Outdoor Corp (NASDAQ: DECK), which is up over 20% this morning after smashing Q3 earnings estimates and upping their Q4 outlook. Where CROX makes ugly, trendy rubber footwear, DECK makes alternative, ugly, trendy UGG boots, so their fortunes may be similar, which is a good thing looking at this DECK quarter. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CROX.

CROCS stock has been strong all year, reaching a high of $72.40 last week. CROX opened this morning at $66.98. So far today the stock has hit a low of $65.47 and a high of $67.33. As of 10:45, CROX is trading at $66.93, up $2.42 (3.8%). The chart for CROX looks bullish but deteriorating slightly.

For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 3 months as long as CROX is above $40 at January expiration. CROCS would have to fall by more than 40% before we would start to lose money.

CROX hasn't been below $40 since May and has shown support around $63 recently. This trade could be risky if the market for novelty shoes slows down, but that shows no signs yet and even if it happens, this position could be protected by strong support the stock found when it bounced off its 50-day moving average four times in the past 5 months.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: At publication time, Brent neither owns nor controls positions in CROX or DECK.

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MOST NOTEWORTHY: Kindred Healthcare, Five Star Quality, Corporate Executive Board, Deckers Outdoor and Discover were today's noteworthy upgrades:

• Jefferies upgraded shares of Kindred Healthcare Inc (NYSE: KND) to Buy from Hold on valuation as they believe the risk/reward is attractive given good near-term earnings visibility and reasonable prospects for legislation to remove a significant reimbursement overhang.
• The firm also upgraded Five Star Quality Inc (AMEX: FVE) to Buy from Hold following a meeting with management, to reflect the company's improving occupancy and better cost controls.
• Deutsche Bank upgraded shares of The Corporate Executive Board Company (NASDAQ: EXBD) to Buy from Hold as they believe the company is positioned for strong growth in 2008.
• Nollenberger upgraded shares of Deckers Outdoor Corporation (NASDAQ: DECK) to Buy from Neutral, as they believe the UGG brand will continue to outperform expectations both domestically and internationally.
• Discover Financial Services LLC (NYSE: DFS) was upgraded to Buy from Neutral at Calyon on valuation.

OTHER UPGRADES:

• HSBC raised Taiwan Semiconductor Manufacturing Company Ltd (NYSE: TSM) to Overweight from Neutral.
• Banc of America upgraded Hess Corporation (NYSE: HES) to Buy from Neutral.
• Wal-Mart Stores Inc (NYSE: WMT) was upgraded to Neutral from Sell at Merrill Lynch.
• Deutsche Bank upped General Mills Inc (NYSE: GIS) to Buy from Hold.