Option Volume Soars as J. C. Penney Company, Inc. (JCP) Sinks

J C Penney Company Inc (JCP) has taken a post-earnings dive this morning

Feb 27, 2015 at 10:42 AM
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It's been a pretty rough morning for J C Penney Company Inc (NYSE:JCP), which has plunged 8.1% to $8.38 -- and been placed on the short-sale restricted list -- as the firm's fourth-quarter earnings miss overshadows solid revenue and same-store sales growth. In the options pits, volume has soared to nearly seven times what's typically seen at this point in the day, with calls and puts running in near parity.

Drilling down, JCP's May 10 call has seen the most action, and according to data from the International Securities Exchange (ISE), some of these speculators are closing out of their bullish bets. Elsewhere, the equity's weekly 3/6 8-strike put has also received notable attention, and it appears there could a mix of sell-to-open and buy-to-open activity happening here.

By selling to open the puts, speculators expect the $8 level to serve as a foothold through next Friday's close, when the weekly series expires. Meanwhile, those purchasing new positions are betting on JCP to breach the strike by expiration. Earlier, JCP hit an intraday low of $7.88.

Widening the sentiment scope reveals call buying has been a popular strategy on JCP in recent months. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio of 3.06 ranks in the 99th annual percentile. In other words, calls have been bought to open over puts with more rapidity just 1% of the time within the past year.

On the charts, JCP has been gaining ground since hitting an annual low of $5.90 in early December, up 42%. As such, it's possible some of the recent call buying may have been at the hands of short sellers hedging against any post-earnings upside. More than 31% of the equity's float is sold short, and it would take two weeks to cover these shorted shares, at J C Penney Company Inc's (NYSE:JCP) average daily pace of trading.

Daily Chart of JCP Since December 2014
 

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