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J.C. Penney Company (JCP) Trader Hopes History Will Repeat Itself

One trader rolls out his bearish position to incorporate JCP's quarterly earnings report

by 7/24/2013 10:16 AM
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J.C. Penney Company, Inc. (NYSE:JCP) is slated to report quarterly earnings before the market opens on Aug. 20. The company has had a recent string of bottom-line misses, prompting some negative price action for JCP in the days that followed. Against this backdrop, one speculator on Tuesday adjusted his bearish bet to encompass the retailer's second-quarter results.

Jumping right in... In the early half of yesterday's session, one block of 5,326 August 15 puts was sold at the bid price of $0.33, while a symmetrical block of weekly 8/23 15-strike puts was simultaneously bought at the ask price of $0.55. Trade-Alert indicates that the former was closed, while the latter was opened. In other words, the speculator rolled out his long put position by one week.

Based on the initial entry price for the near-the-money weekly puts, the trader expects JCP to fall south of $14.45 (strike price less the premium paid) by the close on Aug. 23. This breakeven mark represents expected downside of 9% from the stock's current perch at $15.88. Delta for the put is docked at negative 0.31, or 31%, suggesting a less than 1-in-3 chance the position will land in the money ahead of expiration. Should the stock fail to breach the strike price during the put's lifetime, the most the trader stands to lose is the initial premium paid.

While the longer-term trend has tended toward the bullish side, Tuesday's bear was only following suit with a growing movement seen in JCP's options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio has grown to 2.68 from its July 1 reading of 0.50. What's more, the current ratio ranks in the 99th percentile of its annual range, suggesting puts have been bought to open over calls at a near annual-high clip.

It's not too surprising to see this much skepticism levied toward a stock that's shed more than 23% of its value over the past 52 weeks. Additionally, J.C. Penney Company, Inc. (NYSE:JCP) has dropped an average of 8% and 12.6% in the respective day and week following its previous five quarterly earnings reports.


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