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One option player targeting J.C. Penney Company, Inc. (NYSE:JCP) bucked the recent trend toward call buying yesterday in favor of a long-term, aggressively bearish bet. If the stock lives up to this trader's expectations, it will enter territory not explored in over three decades.
Diving in, the most active JCP option in Tuesday's trading was the March 7 put, where 6,669 contracts traded. All of these changed hands at the ask price, and all translated as new open interest overnight, suggesting they were purchased to open (data from the International Securities Exchange [ISE] confirms this suspicion). A sole trader was likely responsible for this activity, as volume took the form of several large and mid-sized blocks that crossed the tape in rapid succession around midday.
Given the volume-weighted average price (VWAP) of $0.34, the breakeven level for this trade -- at expiration -- is the ominous-sounding $6.66 (strike price, less VWAP). This is a 51.3% drop from the stock's current price of $13.67, so the odds of an in-the-money finish aren't likely. In fact, delta for the option is negative 6.9, or roughly negative 7%. (This also means the puts will gain 7 cents in value for every $1 drop in the underlying shares, and will lose 7 cents for every $1 JCP adds.)
JCP has had an interesting year, marked by a CEO search and disgruntled board members. The stock tagged a 12-year low of $12.12 on Aug. 30, but has bounced back nearly 13% since then. It's possible, then, that yesterday's deep-out-of-the-money puts were scooped up by a JCP shareholder looking for a relatively low-priced hedge in the event of a sharp pullback.
Down roughly 53% in the last 12 months, J.C. Penney Company, Inc. (NYSE:JCP) has not visited single-digit territory since December 2000. What's more, the shares have not traded south of $7 since 1982.
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