Option Trade 
J C Penney Company Inc (NYSE:JCP) Call
Thursday, November 12, 2015

**OPTION TRADE: Buy the JCP Jan 2016 9.000 call (JCP160115C00009000) at approximately $0.55. Place a pre-determined sell at $1.10.

Note: No protective stop losses added -- but if you wish to do so make it $0.20.

by Ian Harvey

November 12, 2015

Discount retailer, J. C. Penney Company, Inc. (NYSE: JCP), will report its earnings before markets open on Friday. The Plano, Texas, department store chain is expected to report higher revenue for the July-September quarter, to $2.89 billion from $2.76 billion in the same three months last year. The struggling 113-year-old merchandiser is expected to narrow its losses to $178.5 million, or 58 cents per share, from $188.0 million, or 62 cents per share.

J.C. Penney has had to deal with tough conditions in the retail industry for years, and it has struggled to find its way through a series of second-guessed strategic shifts. Yet even before the company's release of its fiscal third-quarter report on Friday, J.C. Penney preannounced comparable-store sales figures that were above what most investors were expecting to see -- and said that its earnings would also be better than previously forecast.

Management remains confident that its strategic endeavors, which include cost containment efforts, deeper penetration of private brands, focus on omni-channel capabilities and expansion of Sephora stores, will continue to fuel a turnaround.

J C Penney Company has a 52-week low of $5.90 and a 52-week high of $10.09. The company’s 50-day moving average is $9.35 and its 200 day moving average is $8.85. The firm’s market cap is $2.65 billion.

J.C. Penney has gained 31.48% in value in 2015, but the stock can clearly move higher on improving earnings visibility and positive analyst commentary that is sure to follow its Q3-15 earnings release.

J.C. Penney's fiscal second-quarter report in August gave investors some hope that the retailer might pull off a turnaround. Same-store sales growth accelerated to 4.1%, and better margins helped Penney narrow its losses by about 20% from the previous year's quarter. Moreover, the company's cost reductions continued to grow, helping to boost the bottom line and demonstrating the success of its restructuring efforts. As a result, Penney earned a bond-rating upgrade from one agency from CCC to B-, and while that's still firmly in junk bond territory, it's nevertheless a key milestone in demonstrating its ability to improve its financial condition.

On Wednesday, Penney preannounced that same-store sales for the third quarter rose 6.4%, faster than the consensus forecast among investors for 5.7% growth in comps. CEO Marvin Ellison also said that the company would report "gross margin and earnings performance that exceeded our expectations," without going into detail on exactly what those numbers would be.

Yet what likely kept the stock from celebrating rising comps was the terrible quarter Macy’s had. It’s possible that Macy's loss will be Penney's gain.

Also, JCP has been the subject of several analyst reports. Five analysts have rated the stock with a sell rating, four have issued a hold rating, eight have issued a buy rating and one has assigned a strong buy rating to the stock. The stock has a consensus price target of $9.98.

Harvey’s Options Volatility Indicator


J.C. Penney's turnaround is fully intact and gaining steam. Strong Q3-15 comparable store sales growth follows satisfying comps in the first two quarters of 2015. With robust financials coming shareholders' way this week, the retailer's stock is likely going to get upgraded, or at least going to be the target of some positive commentary from analysts that buy into J.C. Penney's solidifying turnaround story. The reward-to-risk ratio remains exceptionally compelling at ~$8/9.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the JCP Jan 2016 9.000 call (JCP160115C00009000) at approximately $0.55. Place a pre-determined sell at $1.10.

Note: No protective stop losses added -- but if you wish to do so make it $0.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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