Option Trading Idea for Jo-Ann Stores (JAS)

Not too many earnings reports coming up this week, so let’s look in the rearview mirror for today’s trade. We don’t have to look back too far, though. Jo-Ann Stores Inc. (JAS) reported after the close on Wednesday (August 25), coming in with a solid, if not a blowout, earnings report. What’s more, the company raised its full-year outlook.

The shares responded, as one would expect, soaring nearly 12% on Thursday. But the stock has weakened since that surge, including a small drop on Friday, while the broader market gained ground.

Part of the problem may be the 100-day moving average, which cut the rally off at the knees and kept a lid on the shares for the past two days.

Figure 1

Unwinding optimism could keep the shares in check as well. The put/call ratio is trolling near an annual low, and all six covering analysts rate JAS at least a “buy” (five rate it a “strong buy”). Not much room for more optimism among these folks, which could lead to some short-term weakness.

JAS options are not heavily traded, so bid-ask spreads are a bit wider than we’d like. As such, play the deep-in-the-money JAS September 45 put, which is nearly 90% intrinsic value.

You probably won’t get a double on this trade, but a drop to chart congestion in the $39-$40 area could yield a solid 50%-75% gain in the options.