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Options Radar: J C Penney, Achillion Pharmaceuticals, Kinder Morgan

Reviewing notable options activity on J C Penney Company Inc, Achillion Pharmaceuticals, Inc., and Kinder Morgan Inc

by 8/11/2014 12:49 PM
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Option traders have taken a shine to retailer J C Penney Company Inc (NYSE:JCP), drug maker Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), and energy concern Kinder Morgan Inc (NYSE:KMI). Here's a look at how speculators have been placing their bets on these three names today.

  • J C Penney Company Inc (NYSE:JCP) is fractionally higher at $9.43, as traders await the company's second-quarter earnings release, scheduled for after the close on Thursday. In the options pits, it appears speculators are expecting JCP to extend its recent trend of higher post-earnings reactions; the stock has averaged a one-week post-earnings gain of 13.5% in the wake of its last four reports. In today's session, JCP calls are trading at three times the average intraday pace, with possible buy-to-open activity detected at the January 2015 10-strike call. By purchasing the calls to open, the buyers expect JCP to soar into double-digit territory by January 2015 options expiration. The affinity for long calls is par for the course for the stock, as its 50-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 2.29 sits just 2 percentage points from an annual peak. However, with nearly 28% of JCP's float sold short, it's possible the recent appetite for calls may be attributable to hedging activity among the shorts.

  • Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) is flirting with a 4.3% gain at $7.68, thanks to a handful of bullish brokerage notes. Wells Fargo upgraded the stock to "outperform" from "market perform," and Piper Jaffray upped its opinion to "overweight" from "neutral" and doubled its price target to $10. In fact, the latter said ACHN's hepatitis C drug looks promising, and "that a potential suitor could step up to the plate this fall." Against this backdrop, ACHN calls are trading at three times the typical intraday rate, with traders possibly buying to open the September 9 call. A move north of $9 would be a first for ACHN since March 2013. Again, though, short sellers could be buying the calls as hedges against a short-term rally, as short interest represents more than one-quarter of the stock's total available float.

  • Finally, Kinder Morgan Inc (NYSE:KMI) is 10.2% higher at $39.82, and earlier touched a record high of $42.49, after the firm said it will consolidate into "the largest energy infrastructure company in North America," according to CEO Richard Kinder. Specifically, KMI will purchase Kinder Morgan Energy Partners LP (NYSE:KMP), Kinder Morgan Management, LLC (NYSE:KMR), and El Paso Pipeline Partners, L.P. (NYSE:EPB) in a $70 billion deal slated to close by the end of the year, pending regulatory and shareholder approval. KMI's 30-day at-the-money implied volatility has popped 15.7% to 25.9%, and touched a 52-week high earlier, pointing to surging demand for near-term options. Digging deeper, calls more than double puts, with speculators taking a shine to the 40 strike in the August, September, December, and January 2015 series of options.


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