As earnings season looms, it’s time for retail stocks to face the balance sheets after a disappointing holiday sales season.

My Power Options system identifies the best candidates for option trading or short-term stock trading, and this week it’s showing a variety of trading opportunities in retailers. Both Nike (NYSE:NKE) and Amazon.com (NASDAQ:AMZN) are rated excellent buys on further strength, while Costco (NASDAQ:COST) and Nordstrom (NYSE:JWN) are pulling back from their upward trends. Home Depot (NYSE:HD) was the worst of the bunch, and is unequivocally trending down.

While buying strong companies on strength is generally a good idea, figuring out solid bets in the options game is not quite so clear-cut. That’s why I have my Power Options system to run multiple regression analysis and other statistical tools that unearth the few stocks that are building momentum and poised to make a quick burst.

One retail stock that has been battered by headlines, short interest and underperforming stores over the past few months caught my eye for an undervalued option trade. With the twists and turns JC Penney (NYSE:JCP) has taken over the past year, it may not be the best stock to go long, but my system has identified a bearish options trade that  has a good chance of success.
Recommendation: Buy JCP May 15 put options at $1.10 or lower, when the stock price is around $19.20. After entry, take profits if the stock price hits $16.10 or the option price reaches $2.00. Exit if the stock price closes above $20.70 or the option price falls to 80 cents.

InvestorPlace advisor Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.  Try Maximum Options today for 2 months for only $99.