By Jud Pyle, CFA, chief investment strategist for the Options News Network
Despite reports that
could see improvements in its home goods business thanks to a rise in pending home sales, at least one investor is bearish on the Texas-based retailer today. This investor could be expecting a pullback in the stock following big gains over the last three months.
Looking at the Nov. 30 puts, more than 8,200 of these contracts traded at around $4.60 per contract during the first hour of the trading day today. These puts, which are trading up about 30 cents so far today, are home to current open interest of just 250. J.C. Penney stock is currently trading down 62 cents to $30.25 -- that is more than 100% above the 52-week low it reached on March 6 when the stock plummeted to $13.71. This is a fairly big move in the option -- 30 cents -- compared to a relatively modest move in the stock, especially given that these are in the November series with more than five months until expiration.
In addition, at least one investor is not convinced that retail stocks will continue rallying despite a better-than-expected April consumer spending report, which sent J.C. Penney shares up 13% on Monday. The investor bought the puts on a bet that J.C. Penney shares will close below $25.40 -- the strike price minus the amount paid for the puts -- come November expiration.
ONN.tv has been cautious about retail stocks, and bearish options activity in J.C. Penney today reinforces our stance that the retail industry might be overbought. Bearish investors on J.C. Penney could be betting on a pullback from a three-month rally and a worse-than-expected same-store sales report due out tomorrow.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."