Wednesday, September 25, 2013

J.C. Penney (JCP) - Volatility Explodes as Stock Hits 13-year Lows; Solvency is Now a Question

JCP is trading $10.25, down 13.09% with IV30™ exploding up 41.9%. 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

I found this stock using a real-time custom scan. This one hunts for vol gainers on the day. There’s news... more on that in a sec. I do note that JCP is the single largest volatility gainer on the day.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percent Change GTE 10
Average Option Volume GTE 1,200
IV30™ Change GTE 7

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 JCP has fallen to multi-year lows. As far as I can tell, these are more than decade long stock price lows. So what’s the news?... Pretty simple, the firm has long been stuck in neutral (or reverse) trying to keep its head above water, but today, Goldie (GS) said, they see any realized “improvement” as being slower than the firm expects and now, here’s the big one, they see potential liquidity issues. In English, Goldie is now looking toward the firm’s solvency as a going concern. Not good…

Let’s turn to the two-year IV30™ chart in isolation, below.

So we can see the incredible pop today in the implied. What’s also noteworthy however, is that JCP has seen higher levels in IV30™ several times this year already. I think the question is not why JCP vol is so high right now, but rather, what the heck was it doing so low before today? This feels like a vol pop back to “normal” rather than a vol pop that is out of the norm. There is huge risk in JCP right now, it may and very well, it may not, but when solvency becomes a question… that’s big boy risk.

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

Across the top we can see the monthly vols are priced to 90.80% for Oct, 82.96% for Nov and 75.83% for Jan’14. So, the risk is focused in the near-term. That is a little odd considering the Nov expiry should have an earnings date. Hmmm...

This is trade analysis, not a recommendation.

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