Penney for Your Thoughts

09/12/2013 8:00 am EST


This troubled retail chain, which has been flailing in its efforts to reinvent itself, has Andrew Giovinazzi of offering a trade based on a sudden spike in its IV.

There is a small sigh of relief in the ongoing Syria Crisis. Who would have thought that Mr. Putin steps in to be the humanitarian in all this? Starting the clock two weeks ago almost nothing has been to script. While the wags will parse the latest out of the State Department, I want to look at something where the implied volatility was actually up Tuesday instead of down.

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JC Penney (JCP) has IV30 up around 1.3 points Tuesday on a day when the VIX was marking down .92 to 14.71. The only real news I can see was a breach of contract with a coffee vendor. This looks like it was enough to drive up the IV in the near mid-term contracts.

3D chart by OptionVision
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JCP feels like it is dead money for a while since it is going to take a bit to unwind the strategy foisted upon it by the former CEO. I think any real pop in IV is probably a sale. If the volatility jump was indeed the lawsuit, the Oct cycle options are probably too early to cover a conclusion to the suit.

There was a size buyer in the Oct 12 puts, which probably contributed to the IV lift. In this case, hedge the volatility sale.

The Trade
Sell an iron condor in JCP in the Oct 4 Weekly cycle. The 12/13 /14/15 does not look too bad.

By Andrew Giovinazzi, Chief Options Strategist,

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