Update Sept 20th, 2012 at 3:04pm: Well after all that work on one little event, I guess I got the story so right that I almost got the trade wrong. I picked the 26 strike for my directional bet as it was outside the implied move as I was looking for the opportunity to sell shorter dated implied vol that I thought would come in after yesterdays Investor Day to finance the purchase of Nov Puts that I wanted to own for their Q3 earnings release in early Nov.
Calendars can be tricky, to have a big winner you need to get a lot of things right, direction, time, magnitude and make the proper vol assumptions. In this case I got the magnitude of the move wrong, and I fully expected Oct vol to get nailed if the stock moved inside the implied move. At this point I am going to take the small profit in the calendar and move on. At this point it is a pure vol trade as the Calendar basically has not delta and to stick with it I would merely be looking to scalp the difference btwn the expirations. I will though look for another entry point to look to buy Nov Puts or Put Spreads as I think the stock could see the low 20s after Q3 results in early Nov.
Action: JCP ($26) Sold to Close the Oct / Nov 26 Put Calendar at .82 for a .12 gain.
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Update Sept 19th, 2012 at 2:50pm: JCP’s is currently hosting their Investor Day in Dallas, TX and their CEO will be taking questions on call scheduled for 2:45pm. As I said in yesterday’s preview (below), the event is being treated like and earnings event by the options market, although the implied move move is a tad lower today at just above 6%. The stock has already moved in a 4% range on the day and now sits unchanged as the call approaches.
What is apparent is that the company is making some very bold moves to change the shopping experience at JCP, and the new CEO has a lot riding on it working, and soon. Investors/traders are lining up on both sides of this one. Today someone just bought the JCP Nov 27/22 1×2 Put Spread for .82, possibly as a hedge against long stock.
Possible Scenarios:
As for today I would assume that the new store format is going to be perceived very well by analysts and will be reflected in their qualitative assessments of the day. From a quantitative standpoint though I assume that many analysts may struggle to see the near term benefits as the company struggles to do away with excess legacy inventory and recondition consumers to such a new experience.
I see a couple possible scenarios today, if the store format is positively received and the CEO says what he has to say the stock could certainly move higher and attempt to fill in the earnings gap from May. The stock currently has about 40% short interest, so it won’t take much to get it going higher.
The other scenario I see is that the store format is well received, but the company does not speak to an improving back-to-school environment, and investors with recent gains peal out of the stock and wait for the company to report their Q3 in early Nov. Nov to me is the main event.
Oct vol is also very elevated for no reason other than it incorporates today’s event. I want to Sell Oct as I believe it will come in after today’s event and Buy Nov as I want to own it for its earnings in early Nov. I think regardless of today’s commentary, Nov earnings likely to disappoint given stock’s recent run.
TRADE: JCP ($29.50) Bought the Oct / Nov 26 Put Calendar for .70
-Sold 1 Oct 26 Put at .50
-Bought 1 Nov 26 Put for 1.20
Break-Even on Oct Expiration:
Max risk is .70, I want stock to close 26 or higher and have Oct 26 Put expire worthless and then look to spread Nov 26 put prior to Q3 earnings.
Conviction Level: I like the set up with the term structure, and want to own puts in Nov, but with short interest so high, squeeze very possible, this is a 1/3 position for me in front of the event.
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Original Post Sept 18th, 2012 at 3:40pm: JCP Investor Day Preview
Event: Tomorrow JCP is hosting their highly anticipated launch of their new store format at their corporate headquarters in Plano, Texas. CEO Ron Johnson (former head of retail at Apple) has a lot riding on his ability to transform JCP’s shopping experience, as he attempts to re-brand the company, and will be hosting analysts at their Investor day to talk about the transformation and answer questions on a call at 2:45pm eastern.
Implied Move: The options market is treating the Investor Day like an earnings event, implying about a 7% move for the rest of the week, (the Sept 29 straddle is offered at $2.05, that means the stock would need to be above 31.05 or below 26.95 to break-even if you bought the move).
Price Action/Sentiment: While the stock is still down 17.5% ytd, it is up 50% from the July lows. The stock is trading less on fundamentals and more as a “special situation”. Activist investors have taken large stakes and have placed their bets that CEO Johnson can sprinkle a little bit of his Apple pixie dust on the beleaguered retailer.
Wall Street analysts remain very skeptical with only 5 Buys, 12 Holds and 3 Sells and avg 12 month price target of $26 which is below the current price.
My View: The company pulled giving forward guidance earlier in the year, so other than some color on comp sales I wouldn’t expect much on the financial front. That said if the CEO does not speak to improving comps during the back to school season the stock could get nailed given the recent run up. My sense would be that the CEO will try to buy as much time as possible as they head into the holiday season that could be make or break for his tenure.
Assuming that the company does not put out a press release in the morning there will be time to evaluate a few different trades prior to the QnA at 2:45pm, with Sept Vol so pumped, I want to sell that to buy anything in Oct or Nov depending on directional bias.