By Jud Pyle, CFA, chief investment strategist for the Options News Network

Some investors are calling limited downside in J.C. Penney ( JCP) and Costco Wholesale ( COST) and expressing that bet by selling puts.

Looking at the Nov. 30 puts in JCP, 7,000 of these contracts have changed hands with the stock currently trading at $29.78 a share. These puts are trading down 75 cents and are home to current open interest of 8,500 contracts. The Nov. 30 puts have a volume-weighted average price of $3.8798, indicating the average price at which these options traded.

JCP shares, currently up $1.02 on the day to $29.72, have rallied 100% since reaching a 52-week low of $14.20 on March 9, and it looks like at least one investor is betting the stock will hold above $26.13, which is the breakeven on this trade.

Back in June, we saw a bearish investor buy more than 8,200 of these Nov. 30 puts for a price of around $4.80 with the stock trading at $30.25 a share. Today, we could be seeing that same investor selling these puts to close; this is another example of how risk aversion is abating in the market.

COST Oct. 45 puts have traded more than 12,800 times so far today with the stock trading at $48.03 a share. These puts have dropped 32 cents so far today, and are home to current open interest of 15,000 contracts. The VWAP of these puts is $1.6631. COST shares are currently trading up 53 cents on the day to $48.01, up 25% since its 52-week low of $38.44, reached on March 9.

Put-selling like this is a sign of moderate bullishness. The investor is getting rid of protective puts that he or she owned because he does not expect the stock to drop by as much as the premium he is collecting, which is why we see it as limited bullish behavior, rather than a sign of a raging bull.

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Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for
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."

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