Breaking Down the $1 Million Bet On J. C. Penney Company, Inc. (JCP)

J C Penney Company Inc's (JCP) February 9 put is in focus today

by Karee Venema

Published on Jan 9, 2015 at 2:13 PM
Updated on Apr 20, 2015 at 5:32 PM

Heading into today's session, J C Penney Company Inc (NYSE:JCP) was sporting a 26.4% week-to-date gain, thanks to a solid same-store sales report and a fresh round of cost-cutting measures. Against this backdrop, the stock's 14-day Relative Strength Index (RSI) is docked at 68 -- dangerously close to overbought territory -- which may partially explain this afternoon's 0.3% dip that has JCP trading at $7.92. Meanwhile, in the options pits, one speculator is betting big on more downside for shares of the retailer over the next six weeks.

Specifically, JCP's February 9 put has seen the most action today. Almost all of the volume occurred when a block of 10,000 contracts changed hands earlier, and it appears these puts were bought to open for $1.3 million (number of contracts * $1.30 premium paid * 100 shares per contract). This is the most the trader stands to lose, should JCP settle north of the strike at the close on Friday, Feb. 20 -- when back-month options expire. Profit for the put buyer will accumulate on a move south of the at-expiration breakeven price of $7.70 (strike less the premium paid).

Widening the sentiment scope reveals it's been calls, and not puts, that option traders have shown a preference for in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 5.78 ranks just 1 percentage point from a 12-month peak. With roughly 36% of the security's float sold short, though, it's entirely possible some of this call buying may be a result of J C Penney Company Inc (NYSE:JCP) shorts picking up hedges on their bearish bets.


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