JC Penny: Let’s Start Monday with JCP Puts

I am an incurable optimist; nonetheless, I am starting my options trading activities this week from the bearish side of the fence as I explore the options of JC Penny Co, Inc. (NYSE:JCP). JC Penny, with its market capitalization of $2.34B is a holding company whose principal business consists of selling merchandise and services to consumers through its department stores and through its Internet Website.

The company sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products, and home furnishings, as well as provides various services, including styling salon, optical, portrait photography, and custom decorating.

Technical Analysis

Shares of JC Penny have traded up to a 52-week high of $11.30 and a 52-week low of $4.90 in that last one year. Shares of JC Penny have traded on both sides of the fence today and the stock is trading up 0.20% to $7.61 per share as at 2:35PM EDT.

JCP Options

The chart above (with my annotations) shows how shares of JC Penny have traded within the last one year. You will observe that the stock has been consistently inconsistent in that it doesn’t appear to have any clear trading pattern. Nonetheless, you will observe that the stock has a firm support level at $7 over the course of the last one year as the green line indicates.

From the chart, you will observe that the stock has moved up to new levels averaging $9 on practically all occasions that the support holds at $7.  You will also observe that the stock crashed to its 52-week low on the singular occasion when the support failed to hold at $7 earlier this year.

Will the Support Hold for JC Penny?

I am still on technical analysis and the trading action so far shows me that we have a higher chance of seeing the support holding than seeing it breached. For one, the shares of JC Penny have not touched $7 in the last one week. In addition, the stock has an RSI of 36.52, which suggests that the stock is just leaving “oversold” territory as the “buy” side gains momentum going forward.

It is somewhat hard to predict that a stock that left oversold territory about one week ago will head back into oversold territory in the new week. Hence, it is easy to presume that the “sell” side is not likely to gain momentum unless the company comes forth with bad news or the market sees a stronger fundamental reason to ditch the stock.

Interestingly, bad news seems to trail the company and fundamentals do not paint an impressive outlook going forward. For one, the company says it expects it same store sales to increase by a low-single digit increase in fiscal 2014. In addition, the company has a high debt-to-equity ratio of 2.09, which has investors worried about its debt management risk.

How to Trade JCP Options

You should note that the stock might be headed back to its 52-week lows if the current rally fails and the stock breaks down below its $7 support. The stock would have broken below the $7 if not for the circuit breaker that was activated last week. I think it would be smart to play JCP options on the sell side; hence, I recommend buying JCP put options. You should consider buying the JCP Feb 2015 5.000 put (JCP150220P00005000) at an asking price of $0.20.

— Daily Option Alerts

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