JCP Jan 2018 Long Puts

So i am reading more than you know, and it has a section in there that groups do a better job forecasting complex topics rather than any single expert. So would like the group's view on JCP. Will start with mine, but am primarily interested in the overall view.

Think the company has no reason to exist, would anyone really miss them (other than employees)? They have a huge debt burden, and if interests rise that makes it harder to service.


  • Maybe even a more specific question. What is the probability of the market suspecting that JCP will be unable to pay its debts at some point in the next year?
  • I would give it 50%.
  • JCP was highlighted in a great book Dead Companies Walking. I would certainly buy a put on them, short interest is 23% so theres lots of people that see it the same way. Very improbable recovery.
  • @proudcolby i am not sure the overall market view on them is so bleak actually. Stock is up 37 percent YTD. S&P Capital IQ has a $10 dollar price target based on .25x p/s multiple on 2017 estimates. But look at their cash position, and how much its been eroding, and their dept position, and my question is what if the price of corporate dept ticks up, how long before people start asking will they be paid?
  • Also here is an interesting link on someone on a value investing forum making the case for JCP bonds:

    @proudcolby , thanks for the book recommendation might check that out. Have such a large book backlog.
  • LevLev
    edited December 2016
    Well i am definitely learning something about options markets. And the markets in general actually. How can you have the call go up, the put go up, and the stock go down significantly. This is pure arbitrage on a company with a market cap of 2.6 Billion and an enterprise value of 7.4 Billion:

    jcp.PNG 76.3K
  • Price (market capitalization) differs greatly from risk and value. I actually hadnt looked at their capital structure before....some 2097 notes is actually hilarious. Fairly certain there will not be a JCP in 2097....without too much imagination its safe to say that retail will change more towards online purchasing. The entire retail sector has felt this with big names like M and JWN. AMZN may have changed the game alltogether. Short sellers are seldom wrong, I would rather follow short seller's investment thesis than Capital IQ, just me perhaps.
  • Yeah the only way i can see those notes being bought is through corporate bond indexes. I can't imagine how someone could go into a meeting and make the case to buy those bonds explicitly.
  • As options are derivative products you will see many inefficiencies. You want a wild one to look at is AMD.
  • @proudcolby might be a stupid question but where are you looking for the historical options prices. Else if i look at AMD i can only see what's going on right now.
  • Use the thinkorswim platform. Its free and you can just paper trade if you don't want to have an account with them.....for options research its pretty good.
  • Signed up to check it out, says free for 60 days, not sure what happens after. Thanks for the tip.
  • Was thinking about the intrinsic worth of the company. Think its close to zero. The only possible value is basically a lottery ticket that they can fundamentally change the business. Without that they have no ongoing business model, and no net assets. Would be interested in the opposite view point? Which has to exist, after all somebody has been buying all the shares that sellers have unloaded.
  • In my view this position is more to protect from large contraction in the corporate credit market, and it's corresponding impact in the stock market. As a small position that could do a fair amount of cushioning under certain circumstances. But it looks like even in a rising market JCP is melting, which is not something i would have predicted. Think JCP has a very large mountain to climb in terms of the environment and it's position in it. They need to be investing more than ever (primarily in e-commerce) at the same time as their balance sheet has tons of debt, and they are trying to become profitable. Does anyone see the situation differently?
  • LevLev
    edited May 2017
    Well now its getting fun. Look at the accounting on this thing.
    Examples, of things i find hilarious:
    They got a 4 million dollar benefit from pensions, i am sure the accounting on that is super reasonable.
    net loss was 3 times more than last year (-180 vs -68), but the adjusted EBITDA increased 67%. Again i am sure their adjustments are super reasonable. What a joke.
    No no pay no attention to all this money that we are loosing.
    Even closing their worst stores their comp store numbers are still going down 3.5%.
  • I think now that this thing has gone way from out of the money, to well in the money, which is rare in the world of options. Especially on a put in an up market, think it deserves a revisit. I for one am simply changing to options that are further out. Managment seems rather dishonest to me. For the first six months of the year they have done twice as bad as last year. $(0.78) vs $(0.40). And their giving this bs adjusted guidance, to where on some fictional adjusted basis they are going to be not only profitable, but doing a lot better than last year. Now maybe they get some sort of holiday miracle, but guiding for miracles is not honest. Then again the alternative is to call it what it is which is a long term zero, so i can't really blame them too much.
  • Also to Wes presentation from the other night at the event in NYC. Where their value portfolio's are like 30% retail. Think the market must be wrong on retailers in some way. Either amzn growth rate has to come way down (25% last quarter from a huge base), or some of these other retailers are worth nothing. The market can't have it both ways. They are all bidding for the same dollars, and gdp does not grow at 25% or even 10%. There is more than one way to look at things in a quant way.
  • In full transparency, i rolled forward at much lower prices, and again out of the money. As the risk return was like 10 to 1 to the upside, and my fundamental view is zero, so i think $2 is a question of when.
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