J.C. Penny (JCP) - Stock Pops, Vol Pops, Vol Divergence on Equity Stake

Discussion in 'Options' started by livevol_ophir, Oct 8, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    JCP closed yesterday at $31.64, up 9.1% with IV30™ jumping 15.6%.

    <img src="http://www.livevolpro.com/help/images/blog/jcp_summary.gif" />

    I noticed JCP yesterday near the close. The stock and vol started popping. The Tick Chart is included (<a href="http://livevol.blogspot.com/2010/10/jcp.html">in the article</a>).

    <img src="http://www.livevolpro.com/help/images/blog/jcp_tick.gif" />

    The news from Barron's:
    Shares of JC Penney (JCP) are up $1.74, or 5.5%, at $33.38, after Bill Ackman’s Pershing Square Capital filed schedule 13D with the Securities & Exchange Commission saying that the firm has taken a position of 16.8% of the shares outstanding.

    As of a few minutes into the open, JCP is up another 4.1% with IV30™ dipping a bit by 4.5%.

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    The company traded over 162,000 options on total daily average option volume of just 13,683. The action was spread around, with nearly 19,000 Nov 30 calls trading, substantially sales as I see it. The Oct 31 calls traded over 3,000x, and I see those as purchases. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/10/jcp.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/10/jcp.html">in the article</a>) illustrates the action by line. Further, at the top we can see the huge vol increase in Oct of 19 vol points or 38%. Nov rose 6 vol points or 13%.

    A large divergence has formed between Oct and Nov, while Nov may have earnings on the 12th which makes this an interesting phenomenon as earnings are a vol event.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/10/jcp.html">in the article</a>) illustrates the vols by strike by month.

    The vol in Oct (red) closed very rickety (is that a word?). I am betting by the open price discovery will push the vol either up or down, but either way it will be smoother... or I'm wrong... (is there an all of the above choice?)

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/10/jcp.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    We can see the stock rise of late with a vol rise.

    <b>Possible Trades to Analyze</b>
    As of 9:39 EST, I am looking at the Options Montage to get prices.

    1. A buy-write. Buy JCP stock and sell a call, maybe the Oct 34 strike @ ~$0.55.

    2. #1 but purchase an Oct 31 put for $0.40.

    3. Sell the Oct 30/34 strangle @ $0.80, buy the Nov 30/33 strangle for $3.30 or a net debit of $2.50. Thosse strikes are sort of random, any kind of calendar seems like a reasonable trade for analysis.

    Details, trades, prices, vols, skews, charts here:

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