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Profit From J.C. Penney's Panic Selling

Stocks in this article: JCPAMZNWMTSHLDTGTMKSSZNGA

NEW YORK (TheStreet) -- J.C. Penney (JCP) was taken to the woodshed Tuesday after reporting disappointing same-store sales. Investors were looking for considerably better than a 2% improvement. Amazon (AMZN), Wal-Mart (WMT), Sears (SHLD), Target (TGT), Macy's (M), and Kohl's (KSS) continue to refuse any quarter to the battered retailer.

Few in retail are jumping for joy after the last holiday season. Wal-Mart and Target are oversold on the daily chart, and even the unstoppable Amazon hit a brick wall. The entire space sold off much more than the overall market since the beginning of the year. J.C. Penney's stock is in a full blown panic, creating an opportunity for some investors.

This wasn't J.C. Penney's first full blown panic selloff. It probably won't be the last either. But markets don't move straight up or down, they ebb and flow as the emotions of investors shift. Because option premium often jumps as prices in the underlying shares fall, writing options can reward the disciplined investor. You can read my Real Money Pro trade idea with actual entry and exit prices. Today's trade idea is only one of several that have made money from this retailer. (If you don't have a subscription for Real Money Pro you can get a free trial.)

Fading extreme moves is how I trade every day. For example, my last trade idea was with Zynga (ZNGA). I bought shares in Zynga about three weeks ago after an analyst downgraded the stock. Zynga is now trading over 30% higher.

The question every investor needs to ask is if the company's stock is under, over or correctly priced relative to its prospects. If the price and value are not in equilibrium, how long before the rest of the market figures it out?

These questions bring us back to the panic selling and how they impact upon price and value. J.C. Penney the company isn't worth 12% less at the end of trading Tuesday compared to the start, but when someone is drowning they're not thinking clearly.

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