JC Penney Company, Inc.
) muscled higher on Friday, toppling its 10-day moving average for
the first time since July 16. From a longer-term perspective, the
shares -- last seen at $16.59 -- have given up roughly 28% over the
past year, and option traders are bracing for more downside.
During the course of Friday's session, JCP saw about 22,000 puts
change hands -- a 76% mark-up to its average daily put volume.
Traders established new positions at the out-of-the-money January
2015 10-strike put, which saw open interest increase by more than
3,500 contracts over the weekend. Plus, 70% of the LEAPS crossed on
the ask side, suggesting they were bought.
By purchasing the puts at a volume-weighted average price (VWAP) of
$1.36, the buyers expect JCP to breach $8.64 (strike price minus
VWAP) by early 2015. In other words, the traders are betting on JCP
to lose nearly half its value over the next year-plus, and sink to
record lows. Risk, meanwhile, is capped at the initial premium paid
for the puts, should JCP remain in double-digit territory.
Since the puts are so far out of the money, it's possible that JCP
shareholders purchased the contracts to hedge their bullish bets.
, the traders lock in an acceptable price at which to sell their
JCP shares ($10 apiece), should the stock take a turn for the
Friday's appetite for puts is just more of the same for JCP. On the
International Securities Exchange (ISE), Chicago Board Options
), and NASDAQ OMX PHLX (PHLX), speculators have bought to open
almost three JCP puts for every call during the past two weeks.
What's more, the resulting 10-day put/call volume ratio of 2.71
sits just 2 percentage points from a 12-month high, suggesting
option buyers are
picking up bearish bets
over bullish at a near annual-high clip.
Still, the security's
Schaeffer's put/call open interest ratio (SOIR)
of 0.78 indicates that calls outnumber puts among options with a
shelf-life of three months or less. This ratio stands higher than
just 15% of all other readings of the past year, implying that JC
Penney Company, Inc. near-term traders remain more call-biased than
This article by Andrea Kramer was originally published on
Schaeffer's Investment Research
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