JC Penney (JCP) is off $1.39 to $20.30 in heavy trading of almost 30 million shares in the wake of its earnings report and has now dropped 24.3 percent in the past few weeks. Options volume is running 6X the daily average, with 83,000 calls and 130,000 puts so far. May 25 calls are the most actives, and the flow includes two 10,000 contract blocks (20K total) bought for $1.67 and $1.57, each block tied to 380K shares for $20.36 and $20.10, respectively. Meanwhile, the top trades look like rolling of “disaster insurance” on the retailer, as an investor sold 14,000 Jan14 $13 puts on JCP to buy 14,000 Jan15 $13 puts, paying $1.29 for the spread and opening in the 2015s. The largest OI positions in JCP are still in the Nov 17 puts, which expire at the end of next week. Recall that much of that open interest (nearly 60K) dates back to Nov 17 – 21 (2X1) put ratio spreads from June (6/26 and 6/22 color). The 21s are now in-the-money and the second largest open interst in JCP at 52,674 contracts. Nov 22 puts are also in-the-money and the third largest OI with open interest of 28,124. Some were opened in mid-October for 43 cents (see 10/16 color) and 13,000 were bought for 74 cents per contract a week before the report.
About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.