View photos It Might Take a Miracle to Save J C Penney Company Inc
JCP stock bulls might point to next month’s quarterly earnings report as a sign of potential hope. But, even when earnings have been better than expected this year, JCPenney stock has fallen — a bearish signal, indeed.
For the record, JCPenney is slated to release its third-quarter earnings report in the second week of November — the company has yet to officially announce a date. Wall Street is expecting a loss of 17 cents per share, on average, with revenue down 3.9% at $2.74 billion.
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Sentiment is pretty much what you would expect for a stock that has plunged 58% amid this year’s bull market rally. Thomson/First Call reports that 17 of the 22 analysts following JCP stock rate it a “hold” or worse.
And, while the 12-month consensus price target of $5.71 represents a 66% premium to yesterday’s close, analysts are sure to revise those targets lower if JCPenney doesn’t offer up some kind of path forward soon.
Meanwhile, short sellers are having a field day with JCPenney’s stock price. As of the most recent reporting period, some 137.9 million shares of JCP stock were sold short, representing more than 47% of the stock’s total float.
Typically, a sizable short position like this would lend itself toward a potential short-squeeze situation, but, with JCP stock price in freefall, it would take a significant rally to make these shorts nervous. Still, a bit of profit taking from short-sellers could provide a bit of support post earnings.
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Options traders have also piled on to the bearish bandwagon. Currently, the November put/call open interest ratio comes in at heavily skewed reading of 2.72, with puts nearly tripling calls among back-month options. This is even more disconcerting given that: one, short sellers typically buy calls to hedge their short positions; two, stocks typically see a rise in call volume ahead of an event like earnings; and, three, stocks trading in dollar territory typically seen more calls than puts given that there is more upside potential to be had than down — you can’t fall below zero, after all.
In short, JCP stock options traders are signalling a vote of absolutely no confidence in the company.
Implieds, meanwhile, are pricing in a rather large move for JCPenney stock. Currently, the November options are anticipating a post-earnings move of nearly 11%. This places the upper bound at $3.77, while the lower bound lies at $3.03. A rally still leaves JCP well short of resistance at $4, while a sell off would threaten to send the stock below $3 to another all-time low.
2 Trades for JCP Stock Long Put: In all likelihood, JCP is in for more pain following its quarterly earnings report. Those traders looking to side with the bears might consider a buying a Nov $3.50 put. This in-the-money put was last asked at 37 cents, or $37 per contract. Breakeven lies at $3.13, while a double on the trade can be had if JCP trades below $2.76 ahead of expiration. Call Spread: On the other hand, with expectations so low, JCP stock has a chance — albeit a slim one — of providing some positive data with next month’s quarterly report. Pretty much any positive news at this point could spark a short-term rally for JCPenney stock, creating a high-risk, high-reward situation for options traders.
Those willing to take such a risk might want to consider a Nov $3.50/$4 bull call spread. At last check, this spread was offered at 12 cents, or $12 per pair of contracts. Breakeven lies at $3.62, while a maximum profit of 38 cents, or $38 per pair of contracts — a potential return of 216% — is possible if JCP stock closes at or above $4 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities. More From InvestorPlace
It Might Take a Miracle to Save J C Penney Company Inc appeared first on InvestorPlace.
This is source I found from another site, main source you can find in last paragraph
Source : https://finance.yahoo.com/news/might-miracle-save-j-c-154449168.html