JC Penney Shares Could Sink to Record Lows This Friday

Short interest on JCP recently skyrocketed to a record high

Nov 9, 2017 at 12:23 PM
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Retailers are in the spotlight this week, with stocks like Kohl's (KSS) and Fossil (FOSL) taking a hit after earnings. Friday morning, traders will digest quarterly results from sector peer JC Penney Company Inc (NYSE:JCP). Here's a closer look at what traders are expecting from the retail shares ahead of earnings.

Earnings History Isn't on J C Penney's Side

J C Penney stock has tanked this year, losing 69% and touching a record low of $2.35 yesterday. At last check, the security was trading 4.8% higher at $2.63, but JCP shares could sink to new lows after Friday's earnings report, if past is precedent.

Historically, JCP stock has moved lower the day after earnings in five of the last eight quarters, with an average post-earnings move of 9.9%, regardless of direction. After earnings in August, the shares plunged 16.6% in one day. This time around, the options market is pricing in a bigger-than-average one-day swing of 24.9%, per at-the-money implied volatility data. A drop of this magnitude would send the security down to record lows, just pennies above $2.

Options Traders Are Betting on Another Retreat

Options traders appear to be bracing for another JCP decline. The security's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 1.26 ranks in the 95th percentile of its annual range, meaning options players have bought to open puts relative to calls at a faster-than-usual clip during the past two weeks. This, even though the penny stock has limited downside wiggle room.

Echoing this, the security's Schaeffer's put/call open interest ratio (SOIR) stands at 2.53, which ranks higher than 95% of all comparable readings taken in the last 12 months. In other words, short-term options traders have rarely been more put-heavy in the past year.

What's more, short interest on JCP stock jumped 11.6% during the last two reporting periods, to a record high of 152.11 million shares. Short interest now represents more than half of the stock's total available float, or nearly two weeks of the equity's average pace of trading. Plus, the security's 14-day Relative Index Strength (RSI) closed at 24 yesterday, deep into oversold territory, which could be the reason for today's short-term bounce. 

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