Last week, we noted that J.C. Penney (JCP) - Get J. C. Penney Company, Inc. Report stock had fallen after the company reported quarterly results. We predicted a reversal after the exaggerated declines. As the chart shows, the prediction came true, producing a 30% profit in the stock options trade we had highlighted, the purchase of a call option.
We had drawn attention to the December 7 call option, which was at 0.84. (Including fees, it could have been bought for $93) Today, it has jumped to 1.30 and can be sold to close at a net of 1.21, a net profit of $28, or 30.1% based on original purchase price.
This is typical of short-term options trades made based on overreactions to earnings news. This is not to say that J.C. Penney is a fundamentally worthwhile company to invest in, but the predictable price pattern presented a great swing trading opportunity.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
Besides blogging at TheStreet.com, Michael Thomsett also blogs at theCBOE Options Huband several other sites. He is author of 11 options books and has been trading options for 35 years. Thomsett Publishing Website