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How J.C. Penney Company, Inc. (JCP) Bears Placed Winning Bets

Traders picked up J.C. Penney Company, Inc.'s January 2015 8-strike puts yesterday

by 4/11/2014 10:10 AM
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J.C. Penney Company, Inc. (NYSE:JCP) put volume more than quadrupled call volume in the retailer's options pits yesterday. Furthermore, the 44,000 JCP puts that crossed the tape represented a 51% mark-up to the daily average. Most active was the January 2015 8-strike put, where 11,349 contracts changed hands -- mostly at the ask price, suggesting they were bought. More than 8,000 contracts translated into open interest overnight, as well, indicating the creation of new bearish bets.

By scooping up the long puts on Thursday, the speculators expected JCP would breach the $8 level by January 2015 options expiration. That prediction is already playing out this morning, as the shares are off more than 7% at $7.92 to trade below $8 for the first time since early March. However, if the equity rebounds above the strike and the LEAPS options expire out of the money nine-plus months from now, the most the traders risk parting with (assuming they're still holding onto the contracts) is the initial cash outlay.

Taking a step back, yesterday's penchant for long puts over calls is business as usual for J.C. Penney Company, Inc. (NYSE:JCP) option traders. During the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a put/call volume ratio of 1.29. This ratio sits in the 87th percentile of its annual range, conveying traders have displayed a stronger-than-usual appetite for long puts over calls during the previous 10 sessions.


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