Most Active Options Update: Sunedison Inc and J C Penney Company Inc

Options traders have been betting bullishly on Sunedison Inc (SUNE) and J C Penney Company Inc (JCP) ahead of next week's earnings reports

Nov 6, 2015 at 1:48 PM
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The 20 stocks listed in the table below have attracted the highest total options volume among mid-cap names during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Two names of notable interest are solar stock Sunedison Inc (NYSE:SUNE) and department store operator J C Penney Company Inc (NYSE:JCP).

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SUNE has been a long-term technical laggard, losing nearly 61% on the year. But after initially dropping as much as 2.9% this morning, the shares were last seen up 2.2% at $7.64 -- and testing resistance at their 10-day moving average.

In the options pits, traders have been betting bullishly on SUNE, ahead of the company's earnings report on Monday morning. Currently, the stock sports a 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 11.09 -- indicating traders have bought 11 times more calls than puts over the last two weeks. What's more, this ratio registers in the 98th annual percentile.

In today's trading, options are running at a slightly accelerated intraday clip. Most active is the weekly 11/13 8-strike call, where it appears one speculator may have rolled up his bullish position from the 7.50 call, based on a pair of 1,929-contract blocks that crossed at these strikes earlier. In other words, with the lower-strike call now in the money, the trader is setting his sights on a move north of $8 by next Friday's close, when the weekly series expires.

In so doing, the buyer is banking on an earnings win from SUNE. Currently, the options market is pricing in a 17% post-event move for the stock, based on its near-term at-the-money (ATM) straddle -- more than doubling the equity's average single-session swing of 8.9%, over the past eight quarters. It's worth noting that the last time SUNE reported earnings, it lost over one-quarter of its value in the following session.

If history repeats itself, the aforementioned option bulls could get spooked, exacerbating Sunedison Inc's descent. An earnings miss could also prompt analysts to downgrade their opinions, considering 11 of 14 have handed out a "buy" or better ratings, with not a single "sell" to be found.

Shifting gears, JCP has been strong on the charts today, last seen 2% higher at $8.85. This is more of the same for a stock that's knocking on the door of a 37% year-to-date advance, even after pulling back from a brief foray into double-digit territory.

Next Friday morning's earnings reveal could be crucial to JCP breaking through that technical hump on a more permanent basis. Based on the equity's near-term ATM straddle, the options market is pricing in a 9.9% swing in the aftermath of the report -- roughly in line with its average single-session move over the prior eight quarters.

Ahead of the event, traders are taking a sunny-side-up approach. JCP's 10-day ISE/CBOE/PHLX call/put volume ratio of 3.79 ranks in the bullish 81st percentile of its annual range. The same cannot be said of short sellers. Despite a 7% decline over the past two reporting periods, over 31% of the stock's float is still sold short, and would take almost eight sessions to buy back, at average daily volumes.

In today's trading, calls are changing hands at 1.3 times the usual afternoon rate. Digging deeper, possible buy-to-open action is taking place at the near-the-money November 9 call, suggesting speculators think J C Penney Company Inc will topple the strike by the close on Friday, Nov. 20, when front-month options expire.
 

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