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J.C. Penney Company, Inc. (NYSE:JCP) is following the broader market path lower today, shedding about 5.2% to trade at $15.08. As such, the stock is seeing a flurry of bearish activity in the options pits, with roughly 25,000 puts crossing the tape so far. This is more than triple the norm, and almost double the number of calls exchanged.
Digging deeper into the data, block of 7,627 puts was bought at the July 16 strike for $1.28 each, while a matching number of puts was sold at the July 17 strike for $1.96 -- resulting in a net credit of $0.68 per pair of contracts. Meanwhile, both strikes have seen an increase in implied volatility. Since both puts are in the money at present, this could be a roll-down strategy. In other words, perhaps the trader is selling to close the July 17 puts, and using part of the proceeds to purchase July 16 puts. In order for him to secure a profit, the shares must fall below $14.72 (strike price less the premium paid) by July expiration.
However, while less likely, the speculator might've used these puts to place a neutral-to-bullish wager on the retailer. Assuming both legs were opened, the trader established what appears to be a bull put spread, hoping JCP will finish at or above $17 by the close on July 19. This would render the options worthless, and allow him to pocket the net credit received, which also represents the maximum profit on the play. The breakeven rail in this strategy is $16.32 (sold strike minus the net credit). Meanwhile, his potential losses are capped at $0.32, or the difference between the strike prices, less the net credit.
From a broader sentiment scope, JCP calls have been favored by the near-term options crowd lately. The security's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.88, with calls outnumbering puts among options due to expire within the next three months. This ratio resides in the 27th percentile of its annual range, meaning short-term traders have been more call-heavy toward the stock just over one-fourth of the time during the past year.
On the technical front, J.C. Penney Company, Inc. (NYSE:JCP) hasn't had much to brag about, considering the equity's year-to-date loss of more than 24%, as well as its year-over-year decline of about 33%. Adding insult to injury, the shares have lagged the broader S&P 500 Index (SPX) by around 13 percentage points during the past month.