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J.C. Penney Company, Inc. (JCP) Traders Brace for a Post-Earnings Dive

J.C. Penney Company, Inc.'s May 5 put saw buy-to-open activity on Tuesday

by 5/7/2014 10:03 AM
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Option Brief: It's been a volatile year for J.C. Penney Company, Inc. (NYSE:JCP), with the shares trading as low as $4.90 in early February, and as high as $9.28 in mid-March. More recently, the equity was seen lingering near $8.56. With the company's quarterly earnings report and annual shareholders meeting slated for next Thursday and Friday, respectively, JCP could be poised for another round of big price swings. Against this backdrop, option players on Tuesday targeted the May 5 put, either betting on or hedging against a notable shift south in the near term.

Nearly 2,700 contracts traded at this deep out-of-the-money (OOTM) strike yesterday -- all of which did so on the ask side, pointing to buyer-driven activity. Implied volatility jumped 6.4 percentage points, and open interest rose the most of any strike overnight, making it safe to assume that new positions were initiated. The options market isn't too confident this put will be in the money at next Friday's close, when front-month options expire, as delta at last night's close was perched at negative 0.019.

In fact, based on present trading levels, JCP would need to plunge more than 41% for these puts to be in the money. With the security up roughly 55% over the past three months, it's possible that some of the activity at this deep OOTM strike could be at the hands of shareholders initiating protective puts against such a drop. Regardless of the motive, the most the put buyers have risked is the initial premium paid. According to Trade-Alert, the volume-weighted average price (VWAP) for the puts was $0.01 apiece.

As touched upon, J.C. Penney Company, Inc. (NYSE:JCP) has a pair of fundamental events scheduled for next week, which can often serve as a catalyst for a stock. Following its last turn in the earnings confessional in February, JCP tacked on 25.3% in the subsequent session. (Conversely, in the wake of its fourth-quarter report in February 2013, the equity logged a post-earnings single-session loss of 17%.) Meanwhile, in today's session, the equity has popped more than 6% -- erasing Tuesday's 4.8% loss -- thanks to a double-dose of bullish brokerage attention at UBS.


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