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J.C. Penney Company, Inc. (NYSE:JCP) finished in the red yesterday, after activist investor William Ackman said his firm, Pershing Square Capital Management LP, may sell its stake in the retailer. This latest development came on the heels of Ackman's recent decision to resign from JCP's board. Nevertheless, bullish traders were undaunted, as approximately 49,000 calls crossed the tape during the course of Wednesday's session -- a 30% mark-up over the equity's typical daily call volume.
Snagging the lion's share of the action was the weekly 8/23 14-strike call, where north of 11,000 contracts changed hands at a volume-weighted average price (VWAP) of $0.19. Since the majority of the calls traded at the ask price -- and open interest at this strike rose overnight -- it's likely that at least some of the volume was made up of newly established positions.
By purchasing the contracts to open, the call buyers are expecting JCP to ascend past breakeven at $14.19 (strike price plus the VWAP) by tomorrow's close, when these weekly options expire. This denotes an increase of 7.7% to the stock's current price at $13.18. The delta for this call was last seen at 0.15, meaning it has a 15% chance of finishing in the money. However, even if the shares stay below $14, traders will only have to forfeit the premium paid.
This preference for JCP calls over puts is a deviation from the recent activity in the options pits. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 2.06, confirming puts more than double calls among the front three-months' series of options. This ratio registers in the 83rd annual percentile, conveying near-term traders have been more put-heavy toward the security just 17% of the time during the past year.
What's more, during the last 50 trading days, almost two puts have been purchased to open for every call on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The corresponding put/call volume ratio of 1.83 is higher than 96% of all readings taken during the past year, suggesting long puts have rarely been in greater demand, relatively speaking.
This pessimism toward J.C. Penney Company, Inc. (NYSE:JCP) isn't exactly brow-raising, considering the equity's year-to-date loss of around 33%, as well as its year-over-year decline of about 46%. The shares suffered a setback in late July amid rumors of credit issues, and have since met resistance at the $14 level. At last check, JCP is down 1.1%, after the company said it implemented a stockholder rights plan to ward off any hostile takeover attempts.