Strangles Purchased on J. C. Penney

Shares of J. C. Penney Company (JCP) are trading lower on the session by 1.03%, at $28.54. The stock has been ticking higher over the past two months after finding a bottom in mid-July. The stock is now testing the 200-day moving average.

With such a critical support/resistance level in battle, traders are betting that JCP will make a sharp move in the next few days. A short while ago, the September $30/28 strangle was purchased 2,416 times, on the offer, for $0.80. Ten minutes later, the trader came back and purchased another block of 3,962 strangles for a net debit of $0.87.

Total trade volume is now eclipsing open interest on both strikes, indicating that this is majority new positioning.

Near-term implied and historical volatility is diverging dramatically, at 51% and 28% respectively. Clearly, the options market is seeing the potential for a large move on the horizon; perhaps the company’s Q3 earnings on November 7^th is the catalyst, but that would not account for today’s long strangle.

J. C. Penney Company, Inc., incorporated in 2002, is a holding company. The company is a retailer, operating 1,102 department stores in 49 states and Puerto Rico as of January 28, 2012.

About Michael Zerinskas

Originally from Chicago, Michael J. Zerinskas began his career as an intern for a small high-frequency trading firm based at the CME; he then moved on to become Chief Options Strategist at Benzinga.com. Michael is now Unusual Activity Editor at The Options Insider, specializing in VIX, volatility, and flagging unusual activity.