Dear Momentum Options Subscriber,
Shares of J. C. Penney (JCP, $8.12, down $0.15) will be in focus on Friday morning, as the company is expected to report earnings ahead of the open. Wall Street is expecting a loss of $0.48 a share on revenue of $2.86 billion.
While companies and analysts do their best to predict where earnings will be for the quarter, JCP’s losses have been erratic over the past year. This makes it difficult to predict how the actual earnings may come in, which is why I tend to focus more on revenue numbers.
On the earnings front, the company has beaten estimates in three of the past four quarters. The breakeven quarter in January missed estimates for a profit of $0.11 a share. The other three quarterly reports showed losses of $0.57, $0.77 and $0.75 a share.
As far as sales, JCP has missed revenue estimates in two of the previous four quarters. However, in July, one brokerage firm raised its revenue forecast to $2.95 billion from a previous estimate of $2.89 billion.
There have been other bullish comments over the past month as well, and a few of the suits-and-ties have upgraded the stock. Last week, one brokerage firm upgraded shares from “Sell” to “Hold.”
In July, another firm upgraded JCP from “Neutral” to “Buy” and raised its price target to $12 from $9. This would represent upside of 45%-50% from current levels.
On a technical level, the chart looks weak, with the 50-day moving average in danger of falling below the 100-day moving average. This potential mini death cross is worrisome, but it could reverse if shares shoot higher on an earnings beat.
Shares held their 200-day moving average following Wednesday’s trip to $7.90 and break below $8. There is risk to $7.40-$7.35, followed by $7, on a disappointing quarter. However, shares could make a run at double digits if the company tops estimates and raises or confirms full-year guidance.
The options on JCP have become slightly expensive, with implied volatility moving over 60. However, the near-term options are cheap enough that one could use them as a lottery trade.
The JCP August 9 calls (JCP150821C00009000, $0.17, down $0.04) could be used as a bullish bet that shares will make a run past $9 and possibly push $10. The breakeven point for the trade would be $9.17, and a double would occur if shares can clear $9.34.
The JCP August 7.50 puts (JCP150821P00007500, $0.23, up $0.04) could be used by bearish traders looking for a test to $7. If reached, these options would also double.
Both aforementioned options together would create a strangle option trade with a combined cost of $0.40. The breakeven points would be $9.40 and $7.10. A double would occur if shares clear $9.80 or fall below $6.70.
As far as the market, trading has been choppy today. The bulls are pushing the next layers of resistance, and a close above these levels would be a bullish sign.
The Dow is currently up 17 points to 17,419, while the S&P 500 is gaining a point to 2,086. The Nasdaq is higher by 12 points to 5,056, and the Russell 2000 is down a point to 1,208.
I will likely sit on the sidelines with JCP, but I do have another trade I want us to get into this afternoon, so let’s go check it out.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 79-26-2 (74%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 12:05 p.m. EST.
I hereby disclose that I will be participating in the following trade(s). Every Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the portfolio.
PowerShares QQQ Trust (QQQ, $110.75, up $0.23)
Buy to open the QQQ September 112 WEEKLY calls (QQQ150904C00112000, $0.95, up $0.05) at current levels.
I like these call options to play a short-term rebound in the QQQs. These are the weekly options that expire on Sept. 4. I will provide the parameters of the trade in tomorrow’s Pre-Market Update.
JPMorgan Chase (JPM, $67.25, up $0.01)
JPM September 70 calls (JPM150918C00070000, $0.46, down $0.02)
Entry Price: $0.80 (8/10/2015)
Exit Target: $1.60
Stop Target: None
Action: Support is at $66 and the 100-day moving average. Resistance is at $68 and the 50-day moving average.
KB Home (KBH, $15.48, up $0.22)
KBH October 16 calls (KBH151016C00016000, $0.69, up $0.09)
Entry Price: $0.52 (8/10/2015)
Exit Target: $1.05
Stop Target: None
Action: Resistance is at $15.50-$15.75 and the 50- and 100-day moving averages. Support is at $15-$14.75.
You can read my detailed write-up on KBH in yesterday’s Pre-Market Update.
Trades on Hold — other 2015 Portfolio Open positions (2): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.
Rigel Pharmaceuticals (RIGL) September 5 calls (from 6/4/15) — Continue to hold.
SPDR Gold Trust ETF (GLD) September 98 puts (from 7/28/15) — Continue to hold.
Editor and Chief Options Strategist