A CDS is similar to options or insurance. A CDS pays when a bond defaults. Keep in mind bonds don't normally default unless shareholders are wiped out.
Even if J.C. Penney doesn't need money right now, investors should consider the peril implied from the company's "just in case" strategy. It's a strategy of raising money now just in case conditions get worse to a point that the company can't raise money after it reports its third- and fourth-quarter results.
Investors should ask what the shares will be worth if the company fails to cease its cash burn. Kohl's (KSS), Target (TGT), and Wal-Mart (WMT) will continue to apply price pressure squeezing revenue and margins.
J.C. Penney does have a few bullets left, including assets like its real estate it can sell; however, it's a long road to paradise. Don't expect a fast turnaround, and if you're buying the new lows, be sure to sell covered calls as a hedge.At the time of publication, the author had no position in any of the stocks mentioned. Follow @RobertWeinstein This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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