Thursday, January 26, 2012

J.C. Penney Company (JCP) - Overhaul and EPS Guidance Push Stock and Vol; Skew Bends

JCP is trading $38.32, up 11.8% with IV30™ up 9.6% as of ~10:40am EST. The LIVEVOL® Pro Summary is below.


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J. C. Penney Company, Inc. (jcpenney) is a holding company. The Company is a retailer, operating 1,106 department stores in 49 states and Puerto Rico as of January 29, 2011.

The stock is popping based on a bunch of news. Here are some headlines, which actually suffice:

-- J.C. Penney jumps after saying 2012 EPS may beat at 2010 earnings
-- J.C. Penney unveils new prices, logo, store design
-- jcpenney Unveils Long Term Financial Outlook at Day Two of Launch Event in New York City

This overhaul ‘n stuff ‘n stuff has popped the stock near an annual high and has pushed the vol as well. Let’s turn to the Charts Tab (6 months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

On the vol side, we can see that while the implied has popped today, it’s still considerably below its recent highs in the last 6 months. In fact, the 52 wk range in IV30™ is [31.87%, 66.21%] – that puts the current level at the 29th percentile (annual). We can also see the stock pop today on the chart – this is a six month high. The 52 wk range in stock price is [$23.14, $40.23].

All of this is semi-interesting, but the attention grabbing phenomenon lies in the skew chart.

The skew in Feb has turned parabolic, with the upside skew bid to the news and the order flow. The next earnings release for JCP is 2-24-2012, which is after Feb expiry. That means the Mar options have an embedded vol event that Feb does not. Tricky…

The most obvious vol diff between the front two months is the upside. I’ve circled the divergence that has formed given that Feb has the parabolic shape, while Mar is “normal”, in that the upside skew is lower than the ATM..

Let’s turn to the Options Tab for completeness.

I wrote about this one for TheStreet (OptionsProfits), so no specific trade analysis here. I can say that the ATM vols are ~44.2% and ~41.5% for Feb and Mar, respectively. But, looking at the upside skew, the vol difference increases rather substantially.

This is trade analysis, not a recommendation.

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