J C Penney Company Inc, Macy's Inc Options Hot as Retail Stocks Get Iced

J C Penney Company Inc (JCP) and Macy's Inc (M) options are unusually active, as both retail stocks slide

Aug 3, 2016 at 10:45 AM
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Retail stocks J C Penney Company Inc (NYSE:JCP) and Macy's Inc (NYSE:M) are getting wrecked this morning, as Kate Spade & Co (NYSE:KATE) earnings have created sector headwinds. At last check, JCP stock is down 3.4% at $8.96, while M stock is off 1% at $32.40. At the same time, traders have been active in both retailers' options pits.

Diving right in, JCP puts are crossing the tape at six times the expected intraday clip. The bulk of the activity is transpiring at the January 2017 4-strike put, where nearly 7,800 contracts have changed hands. According to Trade-Alert, traders may be closing these deep out-of-the-money (OOTM) positions.

Today's preference for JCP puts over calls is par for the course. The retail stock's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.77, outstripping three-quarters of all readings from the past year. This negativity is reflected among analysts, as the majority rate the shares a "hold" or worse. In fact, OTR just downgraded JCP's rating to "negative" from "mixed."

Technically, J C Penney Company Inc is higher on the year. However, since its March two-year highs just below $12, the stock has surrendered over one-quarter of its value.

Meanwhile, retail rival M has seen its options change hands at triple the typical intraday rate. Leading the way is the OOTM August 33 call, where buy-to-open activity is detected. In other words, short-term traders foresee the stock bouncing above $33 by front-month expiration, at the close on Friday, Aug. 19.

This simply reflects the prevailing bullish trend in M's options pits. During the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 4.35 calls for every put -- a ratio that sits just 2 percentage points from an annual high.

The collective optimism is a bit surprising, considering Macy's Inc has struggled badly since its near-term highs north of $45, notched in mid-March. Should the stock continue flagging on the charts, a capitulation among option bulls could exacerbate selling pressure.

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