Here is another pair trade worth taking a look at. I plotted the five-year normalized relationship between JCPenney (JCP) and Sears Holdings (SHLD). This is depicted below.
JCPenney vs. Sears Holdings
Five Years
Source: Telemet Orion
While typically JCPenney trades rich relative to Sears, that gap will close over time. Currently JCPenney is about 19% to 20% rich relative to Sears.
The trade would be to buy Sears and short sell JCPenney against it. If done correctly, the trade should be even dollar for dollar. As Sears is almost twice the price of JCPenney, I shorted two shares of JCPenney for every one share of Sears purchased.
I unwound the last of my existing pair trades: Long Domino's Pizza (DPZ) / short Papa John's (PZZA). We took a small profit on the trade, although, to be honest, it was much more before Domino's got a recent earnings smackdown.
P.S. Will you be there when Cramer makes his next move?
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Investing Ho-Hum, Colgate Posted a Solid Quarter 10/29/2009 1:21 PM EDT The company may be boring, but it offers a relatively safe play on emerging markets and a weak dollar.
At the time of publication, Rothbort was long SHLD and short JCP, although positions can change at any time.
Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.
Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.
Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.
For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.
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