Friday, October 8, 2010

J.C. Penny (JCP) - Stock Pops, Vol Pops, Vol Divergence

JCP closed yesterday at $31.64, up 9.1% with IV30™ jumping 15.6%. The LIVEVOL™ Pro Summary is below.

I noticed JCP yesterday near the close. The stock and vol started popping. The Tick Chart is included (below).

The news from Barron's: (Click Here for Article)
Shares of JC Penney (JCP) are up $1.74, or 5.5%, at $33.38, after Bill Ackman’s Pershing Square Capital filed schedule 13D with the Securities & Exchange Commission saying that the firm has taken a position of 16.8% of the shares outstanding.

As of a few minutes into the open, JCP is up another 4.1% with IV30™ dipping a bit by 4.5%.

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The company traded over 162,000 options on total daily average option volume of just 13,683. The action was spread around, with nearly 19,000 Nov 30 calls trading, substantially sales as I see it. The Oct 31 calls traded over 3,000x, and I see those as purchases. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action by line. Further, at the top we can see the huge vol increase in Oct of 19 vol points or 38%. Nov rose 6 vol points or 13%.

A large divergence has formed between Oct and Nov, while Nov may have earnings on the 12th which makes this an interesting phenomenon as earnings are a vol event.

The Skew Tab snap (below) illustrates the vols by strike by month.

The vol in Oct (red) closed very rickety (is that a word?). I am betting by the open price discovery will push the vol either up or down, but either way it will be smoother... or I'm wrong... (is there an all of the above choice?)

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

We can see the stock rise of late with a vol rise.

Possible Trades to Analyze
As of 9:39 EST, I am looking at the Options Montage to get prices.

1. A buy-write. Buy JCP stock and sell a call, maybe the Oct 34 strike @ ~$0.55.

2. #1 but purchase an Oct 31 put for $0.40.

3. Sell the Oct 30/34 strangle @ $0.80, buy the Nov 30/33 strangle for $3.30 or a net debit of $2.50. Thosse strikes are sort of random, any kind of calendar seems like a reasonable trade for analysis.

This is trade analysis, not a recommendation. Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

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