Schaeffer's Trading Floor Blog

Options Check-Up: J.C. Penney Company, Inc., Zynga Inc, and Electronic Arts Inc.

Analyzing recent option activity for JCP, ZNGA, and EA

by 5/5/2014 8:36 PM
Stocks quoted in this article:

Among the stocks attracting attention from options traders lately are retail chain J.C. Penney Company, Inc. (NYSE:JCP), online social gaming concern Zynga Inc (NASDAQ:ZNGA), and video game maker Electronic Arts Inc. (NASDAQ:EA). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on JCP, ZNGA, and EA.

  • JCP option traders have been scooping up calls over puts at a faster-than-usual rate during the past 10 weeks, according to the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.45, which ranks higher than 86% of comparable readings from the past 12 months. Some of this call activity likely came at the hands of short sellers hedging against more upside on JCP (which is up 73.5% from its Feb. 5 record low of $4.90 to trade at $8.50), as short interest currently makes up 32.1% of the equity's available float. Perhaps the short sellers are picking up insurance against a post-earnings pop, considering J.C. Penney Company, Inc. is slated to report first-quarter earnings after the close on Thursday, May 15. Nevertheless, prices on short-term JCP options are about average right now, from a volatility perspective, as the stock's Schaeffer's Volatility Index (SVI) of 72% ranks in the 50th annual percentile.

  • Although down 34.8% from its March 11 annual high of $5.89 to trade at $3.84, ZNGA has also been on the bullish radar recently. The stock's 50-day ISE/CBOE/PHLX call/put volume ratio of 6.28 ranks just 7 percentage points from a 12-month peak, insinuating calls have been bought to open over puts at a near-annual-high clip in recent weeks. Right now, short-term option prices are relatively inflated, with Zynga Inc's SVI of 72% ranking in the 63rd percentile of its 12-month range.

  • While EA has been preparing for its fiscal fourth-quarter earnings report tomorrow evening, option players have been placing bullish bets over bearish at an accelerated rate. This is evidenced by the fact that the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.94 ranks in the 77th annual percentile. Considering EA shares are up 25.4% year-to-date to trade at $28.76 -- and short interest represents more than six sessions' worth of pent-up buying demand, at the shares' average daily volume -- some of this recent call activity was likely the result of hedging among short sellers. Ahead of the quarterly announcement, front-month options on Electronic Arts Inc. are relatively expensive. In fact, the stock's SVI of 47% ranks higher than 80% of similar readings taken during the past 12 months.

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