The Soros Put on JCP

05/01/2013 8:00 am EST


JC Penney’s disastrous turnaround strategy, which launched its stock into freefall, doesn’t seem to have scared off this high-profile investor, and Andrew Giovinazzi of offers an options trade idea based on his investment.

Kind of a bubbly day as the market stretched out a little bit and put the rally cap on. Several factors, mostly big picture stuff like the consumer and Italy, help buoy spirits. Of the market, in general, we have been getting to these highs on higher realized volatility than in the past. 10 Day HV from LiveVol is clocking in at 18.62 for the SPY and after today’s upswing that number will only wilt slightly. I spend a lot of time watching realized volatility because that tells me the “how” of movement. Look at JCP lately.

JCP got a line of credit and hand up from the Soros Funds as the legendary risk taker plunked down some dough for the teetering retailer. He joins others like Bill Ackman who have taken stakes in the retailer and are now sitting waiting for the turnaround. What that did do is goose investor interest back to 17.15 in the stock from 15.22 not so long ago. That got the implied volatility moving up a bit but today it is cooling off. Note the sigma numbers in LiveVol below. Everything but the May 03 weeklys are getting dinged. Even with the announcement, the realized volatility for 10 days is around 64.85. Not barn burning for JCP considering the roller coaster it has been on. It was one of Option Pit’s favorite stocks to dislike in 2012 after a string of bad earnings.

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While the vote of confidence is good for the stock, the story still needs to play out. Selling some spreads in the near-term JCP should work while everyone figures out just what the master is doing. I think Mr. Soros gave JCP a put and the work to get it done will weigh on the upside up as well. That should be a realized volatility crush.

The Trade
Usually after news, the music starts to fade, and the stocks tend to meander. The JCP May 3 weekly 16/17 put 17.5/18.5 call split fly should work out ok if you sell it. Try to get at least .50 for it.

By Andrew Giovinazzi, Chief Options Strategist,

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