Friday, July 27, 2012

J.C. Penney (JCP) - Vol Reaches New Annual Highs; Is There Something "More" Than Earnings Coming?

JCP is trading $22.84, up 2.8 with IV30™ down 0.4%. The LIVEVOL® Pro Summary is below.


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J. C. Penney Company, Inc. (jcpenney), incorporated in 2002, is a holding company. The Company is a retailer, operating 1,102 department stores in 49 states and Puerto Rico as of January 28, 2012.

This is a vol note in a stock that has earnings approaching, but even that event doesn't fully explain the new found risk reflected in the options.

Let's start with the Charts Tab (one year), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

On the stock side we can see a bumpy ride with a number of large single day moves, but ultimately a downward trend. The stock closed at $30.93 one year ago, so as of this writing it's down 26% YOY. I do also note the recent run up -- the stock closed at $19.25 on 7-17-2012, and is up 18.6% in the last ten calendar days.

On the vol side, we can see the story. On 6-29-2012 the IV30™ was 46.74%. As of this writing, the implied is up 78.6% since then (less than a full month). Then ext earnings release for JCP is due out on 8-10-2012 BMO, but we're still a couple of weeks away from that yet the implied is now at an annual high. Unless there is some news that comes out before the earnings date, I would expect vol to continue to rise into that date. In English, the annual high we see right now could be breached for the next several consecutive days.

The thing about the vol is, I don't really know why it's so high. In fact, the stock made a nice climb on 7-25-2012, and the news stories surrounding that move also point to a bit of confusion. Here's a snippet from a nice Reuters story which openly addresses the fact that the run up that day was in many ways, confounding.


(Reuters) - Shares of J.C. Penney Co Inc (JCP.N) jumped almost 10 percent briefly on Wednesday after a well-known fashion editor sent a glowing message about the department store's revamp under chief executive Ron Johnson on social networking website Twitter.

"I'm @jcpenney's HQ. Thank you Ron Johson (sic) for the walk through of JCP's prototype. Get ready to shop! Its (sic) going to be a game changer!" Nina Garcia, Marie Claire magazine fashion editor and judge on television show "Project Runway", said in a tweet.

Garcia also signed on last week as J.C. Penney's "Style Voice" and fashion collection curator.

Penney shares rose to as much as $23.09. The stock was up 4.9 percent at $22.02 later on Wednesday afternoon on the New York Stock Exchange.


Some analysts questioned whether the tweet by Garcia caused the stock move, but could not point to another reason for the jump.

Source: Reuters via Yahoo! Finance; J.C. Penney stock jumps following influential tweet, reporting by Brad Dorfman and Doris Frankel in Chicago; Editing by Dale Hudson

Interesting... There was also some bullish order flow that day.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

Note that the red and yellow curves are the weeklies. We can see that Aug monthly is elevated to all the other expiries, which makes sense given the earnings date. The Aug10 weeklies will be essentially pure earnings options on Friday Aug 10. That will be interesting in terms of vol pricing.

Finally, let's turn to the Options Tab, for completeness.

Across the top we can see the monthly vols are priced to 72.59%, 61.84% and 88.67% for Jul27(W), Aug03(W) and the Aug monthlies, respectively. Again, the vol is rising to and through a new annual high, earnings are a couple of weeks out and the Aug10 (W) options will end up being one day earnings only vol. This could be very fun to watch if no news deflates the vol bubble until the earnings day.

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