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J.C. Penney Traders Expect More Upside

JCP calls are hot in the wake of an upbeat analyst note

by 12/24/2012 10:32 AM
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Retailer J.C. Penney Company, Inc. (NYSE:JCP - 20.39) is one of the lone stocks in the black this morning, and it looks like the options crowd is anticipating an extended rally for the shares in the short term. Within the first hour of the abbreviated session, JCP has already seen roughly 8,500 calls cross the tape -- about three times its average intraday call volume, and around five times the number of JCP puts exchanged.

Digging deeper, most of the action has centered on the 12/28 20-strike call, which has seen roughly 3,400 contracts traded on open interest of fewer than 1,500 contracts, pointing to an influx of new positions. Plus, a healthy portion of the calls changed hands at the ask price, suggesting they were bought.

By purchasing the calls to open, the buyers are expecting JCP to extend its journey higher through the end of the week. More specifically, the calls traded at a volume-weighted average price (VWAP) of $0.69, indicating the buyers will profit if JCP topples the $20.69 level (strike plus average premium paid) by Friday's close, when the weekly calls expire. However, even if JCP reverses course in that timeframe, the most the buyers can lose is the initial premium paid.

From a broader sentiment standpoint, today's affinity for long calls is nothing new for JCP. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.06 registers in the 65th percentile of its annual range. Or, in simpler terms, option buyers have picked up JCP calls over puts at a faster-than-usual clip during the past couple of weeks.

Echoing that, the security sports a Schaeffer's put/call open interest ratio (SOIR) of 0.76, indicating that calls comfortably outnumber puts among options expiring within three weeks. What's more, this ratio sits just 4 percentage points from a 52-week nadir, suggesting short-term options players have rarely been more call-skewed during the past year.

At last check, the shares of JCP have tacked on 4.1% to wink at the $20.39 level, bucking the broad-market trend lower in the wake of an upbeat analyst note. Specifically, Oppenheimer this morning said it's "increasingly optimistic" that the retailer's return to holiday promotions will allow the chain to "re-accelerate its aggressive turnaround strategy" next year, and "make the most of a challenging" holiday season, citing "solid" traffic in two New York City stores over the weekend.


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