Schaeffer's Trading Floor Blog

Doubt Surrounds J.C. Penney Company, Inc. (JCP) Ahead of Earnings

Even the recent spike in JCP call buying may be the work of shorts seeking protection

by 11/19/2013 2:38 PM
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J.C. Penney Company, Inc. (NYSE:JCP) is scheduled to report third-quarter earnings before the market opens tomorrow. The embattled retailer is expected to post a loss of $1.77 per share, compared to a year-ago loss of 93 cents. Historically, JCP's post-earnings price action has been frequently negative, with the shares averaging a loss of 4.9% and 9.9% the respective day and week after its last seven quarterly announcements.

Ahead of Wednesday morning's earnings report, sentiment is mostly negative. From 18 covering brokerages, JCP has received just two "strong buy" ratings, versus 12 tepid "holds" and four "strong sell" suggestions. Elsewhere, short interest currently comprises 53.5% of the stock's outstanding float -- close to a multi-year high.

Opinions appear to be quite different in the options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, JCP has racked up a 10-day call/put volume ratio of 2.10, which registers in the 94th annual percentile. Not only does this data mean that calls bought to open have more than doubled puts during the past two weeks, it also means the rate of call buying (relative to puts) is approaching a 52-week extreme.

However, given the retailer's high levels of short interest, some of this call buying may be the work of shorts seeking to hedge their bearish positions in the short term. After all, in the session following its August earnings report, JCP rallied nearly 6% in one day.

From a longer-term perspective, J.C. Penney Company, Inc. (NYSE:JCP) has struggled on the charts. At last check, the shares were sitting at $8.69, down nearly 56% year-to-date.

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