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Pre-Earnings Bears Circle J.C. Penney Company, Inc. (JCP)

J.C. Penney Company, Inc. puts have grown increasingly popular ahead of next week's earnings release

by 5/9/2014 10:29 AM
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Option Brief: J.C. Penney Company, Inc. (NYSE:JCP) will step up to the earnings plate next week, and options traders continue to bet on a post-earnings retreat. During the course of Thursday's session, roughly 37,000 JCP puts crossed the tape -- a 59% mark-up to the stock's average daily put volume. What's more, the equity's 30-day at-the-money implied volatility edged 2.6% higher to 69.9%, echoing a growing demand for short-term contracts.

It was the May 8.50 put, in fact, that garnered the most attention, with 7,252 contracts exchanged. Eighty-three percent of the puts traded on the ask side, and open interest surged by more than 6,600 contracts overnight. In other words, it appears the puts were bought to open.

By buying the puts at a volume-weighted average price (VWAP) of $0.30, the speculators will make money if JCP is sitting south of breakeven at $8.20 (strike minus VWAP) at next Friday's close, when the options expire. Should the security remain north of the strike after earnings -- which are due Thursday evening -- the most the traders are risking is the initial premium paid for the contracts. However, considering the stock's Schaeffer's Volatility Index (SVI) of 88% stands higher than 71% of all other readings from the past year, JCP's front-month options are expensive right now, historically speaking.

On the charts, J.C. Penney Company, Inc. (NYSE:JCP) was last seen 5% higher at $8.98, bringing its month-to-date gain to 5.4%. From a longer-term perspective, the shares have faced a formidable foe in the $9 region, which has acted as a technical roadblock since early March, and hasn't been conquered on a daily closing basis at all in 2014. Off the charts, the company has fallen short of Wall Street's bottom-line estimates in six of the past seven quarters, but the stock was 39.3% higher five sessions after its last earnings report (which was with the lone beat).


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