Tuesday, August 13, 2013

J.C. Penney (JCP) - Stock at Decade-year Lows; Volatility at Multi-year Highs; Solvency Risk? Is JCP Going Away?

JCP is trading $12.80, down 2.8% with IV30™ up 1.1%. The LIVEVOL® Pro Summary is below.

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. Its business consists of selling merchandise and services to consumers through its department stores and through its Internet Website at jcp.com.

I found this stock using a real-time custom scan. This one hunts for elevated vols. JCP does have earnings due out on the 20th of this month (after Aug expiry), but the implied is now trading at multi-year highs… Something is afoot and that "thing" maybe solvency risk for JCP.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The two-year JCP Charts Tab is included (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 the quite poor returns both over one-year and two-years. The high over this two-year period is in the $43 range and we’re now lookin’ at a $12 stock… icky…

As the stock has been making multi-year lows, the volatility is playing the “opposite game,” now reaching multi-year highs ahead of earnings. Let’s look at the two-year IV30™ chart in isolation, below.

Keep in mind that there are seven calendar days to go before earnings for JCP so the vol levels today will quite possibly be breached for each consecutive trading day ahead of earnings.

Here’s the rub… With all the noise surrounding JCP and an earnings announcement due out, I kind of get the feeling that the vol should be at multi-year highs. I mean, it certainly should be elevated relative to some benchmark. The question becomes “what will be released in the earnings announcement and how much will it move the underlying?” Right now the option market says, “a lot, and a lot.”

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

Across the top we can see that Aug and Sep vol are nearly identical, but of course, Aug represents three (and a half) days. It wouldn’t surprise me to see vol inch closer to triple digits for JCP before the announcement. It also wouldn’t surprise me to see the stock move that much on the news. Ya know… or not…

This is trade analysis, not a recommendation.

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