Bears Welcome J C Penney Company Inc (JCP) Scandal, Drop

J C Penney Company Inc (JCP) is buckling under allegations of deceptive advertising

by Alex Eppstein

Published on Dec 9, 2015 at 1:43 PM

J C Penney Company Inc (NYSE:JCP) is licking its wounds this afternoon, after the retailer was sued by -- and subsequently settled with -- U.S. regulators over charges of mislabeling textile products. JCP will pay $290,000 for allegedly deceiving consumers into believing certain rayon products were made with bamboo. At last check, the stock has tumbled 2.9% at $7.50.

In the last couple weeks, option traders have been betting on losses for the shares. JCP's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.93 ranks only 4 percentage points from an annual high. Echoing this prevailing skepticism, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.84 outstrips 88% of comparable readings from the past year.

Today, though, JCP's most active strike is the December 8 call. It looks like traders may be buying to open the out-of-the-money option, expecting the shares will muscle back atop $8 by next Friday's closing bell, when front-month contracts expire.

Shifting our gaze elsewhere, short sellers and analysts have taken a glass-half-empty approach toward JCP. On the one hand, 31.4% of the equity's float is sold short. On the other, close to two-thirds of analysts covering the stock have deemed it a "hold" or worse.

J C Penney Company Inc (NYSE:JCP) has done very little to inspire confidence on Wall Street lately. Since flirting with double-digit territory in September and October, the shares have retreated rapidly, losing roughly one-quarter of their value.

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