Options Hot as J C Penney Company Inc (JCP) Tests Historical Floor

J C Penney Company Inc (NYSE:JCP) is slumping with its fellow retail stocks, and options volume is accelertated

Jan 5, 2017 at 10:55 AM
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Retail stocks are getting rocked today, following disappointing holiday sales results for a number of notable names. While retailer J C Penney Company Inc (NYSE:JCP) has yet to release its numbers, the stock is suffering along with its sector peers. At last check, JCP stock was down 6.4% at $7.93, and options volume is running at a quicker-than-usual rate in early trading.

By the numbers, 12,500 calls and 20,800 puts have changed hands so far -- four times what's typically seen in JCP's options pits at this point in the day. If this accelerated pace continues, total daily options volume is set to settle in the 98th percentile of its annual range.

On the call side, speculative players appear to be purchasing new positions at the weekly 1/13 8 strike and January 2017 8.50 strike, meaning they expect a quick bounce for the shares over the next two weeks. Put players, meanwhile, are possibly selling to close their in-the-money weekly 1/6 8-strike puts ahead of tomorrow's expiration, while buy-to-open activity has been detected at the stock's January 2017 8-strike put -- pointing to expectations of an extended short-term decline.

Today's heavy options activity just echoes a recent trend. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, JCP options have been some of the most actively traded among mid-cap stocks in the last two weeks, with a tilt toward calls. Specifically, 181,612 calls have traded on JCP stock in the past 10 sessions, compared to 94,490 puts.

Drilling down on buy-to-open activity at the major options exchanges, though, reveals a more bearish skew. In fact, speculative players at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 28,333 JCP puts in the last two weeks, versus 27,043 calls. What's more, the resultant put/call volume ratio of 1.05 ranks in the 70th annual percentile.

Echoing this put-heavy backdrop is JCP's Schaeffer's put/call open interest ratio (SOIR) of 1.77. Not only does this show that puts nearly double calls among options set to expire in three months or less, but it ranks in the elevated 73rd percentile of its 12-month range. Simply stated, short-term speculators are more put-skewed than usual toward the retail stock.

This skepticism is seen outside of the options pits, as well, with short interest accounting for more than one-fifth of the stock's available float. Plus, the majority of analysts covering the shares maintain a "hold" or "strong sell" rating.

However, given the stock's lackluster technical showing, it's no surprise to see so much pessimism levied toward J C Penney Company Inc (NYSE:JCP). Since being rejected in the $10.60-$10.75 region in early November -- home to a 23.6% Fibonacci retracement of last year's rally from late January to early March -- the shares have surrendered 26%. Additionally, today's plunge has JCP below the critical $8 mark, a level that served as a floor during pullbacks in June and November.

jcp daily since january 2016

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