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Option Brief: J.C. Penney Company, Inc. (NYSE:JCP) is treading in unfamiliar waters today, with the stock sitting on the north side of breakeven, and, at last check, was up 7.3% at $7.03. One group of speculators appears to be especially optimistic this positive price action will continue over the long term. More than 4,200 February 2014 12-strike calls have changed hands thus far, the majority of which have done so on the ask side. Implied volatility is up 10.3 percentage points, and volume is outstripping open interest, pointing to buy-to-open activity.
By purchasing the deep out-of-the-money (OTM) calls, traders expect JCP to move north of $12 over the next three-plus months. Considering this mark sits 70.7% above JCP's current perch, delta for the call is docked at 0.25, or 25%, suggesting a 1-in-4 chance the option will find its way into the money ahead of expiration. Should the stock fail to topple the strike price, the most the traders have on the line is the volume-weighted average price of $0.39 per contract paid.
JCP's struggles on the charts have been a popular topic around the water cooler for some time. As a quick refresher, the security has shed 72.8% of its value over the last year, amid a turnstile of fundamental follies. With short interest accounting for nearly 57% of the stock's float, a portion of today's activity at this deep OTM call could simply represent short sellers picking up some hedges against any longer-term upside for J.C. Penney Company, Inc. (NYSE:JCP).