J. C. Penney Company, Inc. (JCP) Option Bulls Busy on Earnings Eve

J C Penney Company Inc (JCP) call options are flying off the shelves ahead of earnings tomorrow

Feb 25, 2015 at 11:00 AM
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J C Penney Company Inc (NYSE:JCP) option traders are gambling on a post-earnings pop for the retailer, which will unveil its quarterly figures tomorrow night. Early call volume is running at five times the average pace, and the equity's 30-day at-the-money implied volatility has jumped 4.2% to 58.2%, reflecting the growing demand for short-term contracts.

In fact, the weekly 2/27 9- and 9.50-strike calls are most active, with buy-to-open activity detected at both strikes. By purchasing the calls to open, the buyers expect JCP to muscle north of the strikes by Friday's close, when the options expire. At last check, JCP has erased an early lead, down 0.7% at $8.82, after peaking at $9.18 in early action.

Today's pre-earnings call buying is more of the same for JCP. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than five calls for every put during the past two weeks. What's more, the resulting 10-day call/put volume ratio of 5.05 sits 4 percentage points from an annual high, indicating a much healthier-than-usual appetite for bullish bets during the past two weeks.

Of course, it's worth noting that nearly one-third of JCP's float is dedicated to short interest, representing almost two weeks' worth of pent-up buying demand, at the stock's average pace of trading. Against this backdrop, it's possible that some of the recent call buying -- especially at out-of-the-money strikes -- could be attributable to short sellers looking for a pre-earnings hedge.

On the charts, J C Penney Company Inc (NYSE:JCP) has rallied more than 22% so far in February, and is on pace to end atop its 80-week moving average for the first time since May 2012. Off the charts, while JCP has retreated in the session after its last two earnings reports, the stock has averaged a single-session post-earnings gain of 3% over the past eight quarters.

Weekly Chart of JCP since April 2012 with 80-Week Moving Average
 

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