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Option Brief: J.C. Penney Company, Inc. (NYSE:JCP) is down 4.6% at $7.26, and is poised to end beneath its 50-day moving average for the first time since Feb. 26 -- the session before its post-earnings bull gap. As such, option players are placing bets on limited upside for the retailer in the short term.
The equity's 30-day at-the-money implied volatility is 2.8% higher at 61.5%, reflecting the escalating demand for short-term contracts. Roughly 13,000 JCP calls have changed hands so far -- a 33% mark-up to its average intraday volume -- though a healthy portion of the action is of the sell-to-open variety.
Most active on the call front is the out-of-the-money (OOTM) weekly 5/23 9-strike call, where 2,450 contracts have traded. Most notably, two blocks of 1,200 crossed at the bid price right out of the gate this morning, and volume has exceeded open interest at the strike, underscoring our theory of newly written positions.
By selling the calls to open, the traders expect JCP to remain south of $9 through the close on Friday, May 23, when the options expire. In this best-case scenario, the calls will remain OOTM, and the sellers can retain the entire net credit. With the shares moving lower today, delta on the calls has fallen from 0.26 last night to 0.20, implying a roughly 1-in-5 shot of an in-the-money finish.
Technically speaking, the $9 level has been a point of contention for J.C. Penney Company, Inc. (NYSE:JCP) shares since late 2013. In fact, the stock hasn't closed a session north of this strike since Dec. 31. In the May series of options -- which assumes front-month status after the close on Thursday -- the 9 strike is home to peak call open interest, with more than 28,000 contracts in residence. This accumulation of calls could translate into options-related resistance in the short term, should JCP attempt a recovery.