Wednesday, March 6, 2013

JC Penney (JCP) - Stock Breaches Multi-year Lows, Calendar Vol Opens; Parabolic Skew Reflects Heightened Tail Risk

JCP is trading $14.52, down 3.0% with IV30™ up 0.6%. 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 1,102 department stores in 49 states and Puerto Rico as of January 28, 2012.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

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

I note two phenomena here:
1. Mar vol is elevated to Apr vol across all strikes.
2. Both months show almost identical parabolic skews reflecting heightened tail risk (to both sides).

Now we can turn to the one-year Charts Tab (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

The stock has been on a cataclysm ride for the last year, dropping from $38.47 to now $14.50. Even more troubling is the recent move off of earnings on 2-27-2013 AMC. The stock has fallen from $21.16 in just two weeks. Scary stuff if you look at that stock chart. The stock is now trading at a new multi-year low.

The implied dipped after earnings (which is normal) but has risen of late as the stock continues its free fall. The 52 wk range in IV30™ is [29.38%, 93.58%], putting the current level in the 63rd percentile. That feels low to me... actually, it feels very low to me.

Finally, let's look to the Options Tab (below).

Across the top we can see that Mar is priced to 75.30% and Apr to 67.71%.

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1 comment:

  1. When you say "The 52 wk range in IV30™ is [29.38%, 93.58%], putting the current level in the 63rd percentile. That feels low to me... actually, it feels very low to me.":

    Are you saying the IV is already at its peak (may be 99th percentile) or are you saying the current IV is very low and it can sky rocket beyond the 52week high of 93.58%.

    Ophir, your articles are "great" and you make us think. We appreciate your analysis. We understand the footline, "This is trade analysis, not a recommendation". I believe the above footline would still be valid if you probably said something like, "A few ways to play this setup are...bla bla bla". Honestly, I must agree with other comments on your articles that the articles are left in a vague state.

    If you have an advisory service, please let us know, I would be among the first lot to join. Thank you again!