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Undeterred by yesterday's broad-market trends, the shares of J.C. Penney Company, Inc. (NYSE:JCP) tacked on 5.5% to finish at $13.83 -- less than a week after hitting a 12-year low of $12.34. JCP stakeholders received good news Thursday morning, too, with rumors of a strong start to back-to-school season.
In the options pits, however, we found a large group of traders betting on J.C. Penney's long-term downtrend to continue. Thursday's most active option was the September 13 put, where nearly 12,300 contracts traded at a volume-weighted average price (VWAP) of $1.34. Because the majority of the puts changed hands at the ask price, and open interest spiked by almost 8,300 contracts overnight, we can assume the options were bought to open.
For yesterday's bearish traders to profit, they need the shares of JCP to dip to $11.66 (strike price minus VWAP) by September options expiration -- a 14% drop from the retailer's current per-share price of $13.57. With each step south of that breakeven point the stock makes, the put buyers will profit; by contrast, if the shares remain north of the strike, the most they can lose is the premium paid.
Thursday's bearish bias was business as usual for J.C. Penney. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day put/call volume ratio of 2.27. That figure ranks higher than 90% of comparable readings from the past year, meaning traders have rarely been as inclined toward long puts (relative to calls) as they are now.
What's more, short interest on JCP ramped up over 23% during the last two reporting periods, and now comprises close to 44% of the stock's available float. This total represents over five days' worth of pent-up buying power, at the stock's average daily trading volume.
Turning to the charts, we see that J.C. Penney Company, Inc. (NYSE:JCP) has put on a poor showing, shedding 44% in the past year. Things aren't getting any better, either -- the stock has trailed the broader S&P 500 Index (SPX) by 26-plus percentage points through the last three months.
Moreover, with earnings scheduled for release next Tuesday morning, JCP could be in for further losses. The company has missed its earnings-per-share estimates for each of the past five quarters, resulting in an average one-week loss of 12.6%.