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Trade of the Day: JC Penney (JCP)

We're not buying this turnaround story


We’re recommending a new bearish trade on JC Penney (JCP) after it has been rising a bit following positive comments from Phillips-Van Heusen at a recent investor conference. The comments were just enough to push the stock to its intermediate-term resistance level at $9 per share.

We don’t share PVH’s enthusiasm for JC Penney, which has been stuck in a near death-spiral over the last few years. The company is set to report earnings on May 15, and we are expecting investors to look for cover before and after the report.

JC Penney caught a big break in February when it released its prior report. The massive loss was a little less severe than expected, which broke a six-quarter streak of negative surprises, and they provided stronger-than-expected guidance for the rest of the year. Traders like a turnaround story, but guidance was incredibly vague. Management has a strong incentive to be positive about margins because they need their creditors to continue providing capital.

We suspect that JC Penney is going to lose the benefits from last quarter’s short-squeeze and drop again on worse-than-expected news.

Buy to open the JCP June 9 Puts (JCP140621P00009000) for a maximum price of $1.00.

While we don’t have a specific target in mind and we are constantly evaluating stock charts to determine when the best time to take profits it, we typically do not recommend stop losses for options. We almost never recommend them because normal market volatility for an option of as much as 30% to 60% each day can lead to a lot of unintentional early exits. Instead, we emphasize the importance of proper position sizing.

When you enter an options trade with your eyes wide open and realistic expectations, you’ll be better at managing your trades and, in turn, your risks. We strongly recommend that you only allocate 2% to 5% of your trading funds into each trade. That way, if the trade goes against you, you’re not going to lose your shirt and be unable to rebound from the loss.

InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news from Wall Street and beyond.  Get in on the next trade and get 1 free month today by clicking here.

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