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After shedding nearly 56% of its market value since peaking at $43.18 on February 9th, JC Penney’s shares are attempting to stabilize near $20.

With seasonality in its favor, we strongly believe this could be a superb time to bet on a rebound. After all, in each of the past three years, had you purchased JCP on August 17th and sold on October 15th, you could have realized respective gains of 24.0%, 74.3% and 19.8%. Meanwhile, in the cases of the August 2010 and 2011 bottoms, you could have banked substantially higher gains of 86.3% and 69.0% had you held on for just four additional months, until February 15th. The exception: In 2009, JCP doubled between the March 6th and August bottoms, which is what we partially attribute the muted August-October return and post-October 15th decline to.

Considering that the stock has fallen more this year than any of the past three years, going into this time of seasonal strength, we are very confident that the upcoming rally will meet or exceed the average gain of 39%. That said, we would not be surprised to see JCP trading above $26 by mid-October. And if the overall market is doing well and sentiment towards JCP reverses, the shares could be substantially higher than that.  But for now, we would at the very least bet on a move to the mid-upper $20’s over the next few months

To profit from this expected rebound, we suggest purchasing the November 22/27 call spread for a debit of $1.40, which could net you a 257% return over the next three months, if our prognosis is correct. Or you could take on a little less time risk and buy the February 25/30 call spread for a debit of $1.10, which would provide you a 354% windfall (before commission and fees) if the shares move north of  $30 by mid-February.