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Bear Predicts Holiday Season Slide for J.C. Penney Company, Inc. (JCP)

Accounting for over one-fifth of JCP's option volume Friday was a short call spread

by 12/2/2013 10:56 AM
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Option Brief: J.C. Penney Company, Inc. (NYSE:JCP) calls outpaced puts by nearly a two-fold margin last Friday, 60,000 contracts to 32,000. Helping the calls achieve that advantage was a two-legged transaction involving the weekly 12/6 9.50- and 10.50-strike calls.

Blocks of 10,000 contracts traded at each of the strikes, and open interest soared at both over the weekend, indicating the initiation of new positions. The lower-priced lot crossed the tape near the bid price, at $0.76 per contract, suggesting it was sold. Meanwhile, the higher-priced lot changed hands at the ask price, at $0.23 each, suggesting it was purchased.

Together, we have what looks to be the creation of a short (bear) call spread, for a net credit of $0.53 per pair of options (premium received less premium paid). This is the maximum potential profit for this bearish strategy, should JCP shares close out this week at or below $9.50. (The maximum loss, in the event that JCP is trading above the 10.50 strike at expiration, is $0.47 per spread.) Year-to-date, J.C. Penney Company, Inc. (NYSE:JCP) has lost nearly half of its value -- though it has advanced more than 60% off its late-October low -- and was last seen hovering at $10.11.


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