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J.C. Penney Company, Inc. (NYSE:JCP) is up 6.5% to trade at $13.55 this afternoon, after Glenview Capital Management LLC said it increased its stake in the retailer to 9.1%. This latest development comes on the heels of activist investor Bill Ackman relinquishing his entire stake in the struggling retailer just last week. As a result of today's news, JCP calls have been flying off the shelves, with around 81,000 of these contracts crossing the tape thus far -- more than double the norm. By comparison, around 41,000 puts have changed hands.
Garnering notable attention is the weekly 9/6 13.50-strike call, which has seen north of 7,300 contracts exchanged -- the majority of them at the ask price, hinting at buyer-fueled activity. Specifically, these at-the-money calls traded at a volume-weighted average price (VWAP) of $0.25. Meanwhile, today's volume has exceeded current open interest levels, and implied volatility has ticked 3 percentage points higher, confirming the creation of fresh bullish bets.
In other words, the call buyers will start to profit with each step JCP takes north of breakeven at $13.75 (strike price plus the VWAP) between now and Friday's close, when these weekly options expire. This would require an increase of 1.5% from the stock's present price. Considering the call's delta of 0.53, the options market sees a 53% chance of this happening. Still, even if the shares fail to hold above the strike price over the next few days, the most the traders stand to lose is the initial premium paid. It should also be noted that since short interest accounts for a whopping 75% of the equity's float, some of today's call players could actually be skeptics looking to hedge their bearish bets.
Elsewhere, close to 9,500 call contracts have switched hands at the September 14 strike -- almost three-quarters of them at the bid price, implying they were sold. What's more, data from the International Securities Exchange (ISE) confirms that at least some of the calls at this strike were sold to open. In this scenario, traders are counting on the retailer to remain south of $14 through front-month expiration. This would render the options worthless, and allow the sellers to retain the initial premium received.
However, should JCP ascend past the strike price ahead of the close on Sept. 20, the speculators could be obligated to deliver the shares at $14 apiece, no matter how high the security climbs over the next couple of weeks. This activity could also be reflective of a covered-call strategy.
Today's advance aside, J.C. Penney Company, Inc. (NYSE:JCP) has been struggling on the charts, shedding more than 31% year-to-date. Adding insult to injury, the stock has also underperformed the broader S&P 500 Index (SPX) by nearly 32 percentage points over the most recent three-month time frame.
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