JC Penney’s having a rough decade.
The 115-year old department store’s suffered two major selloffs since 2010. It first crumbled from the $30s to the $10 range between 2012 and 2014. Then between late 2016 and late last year, the stock spiraled from $10 to $3.
The bears were back in a big way on Friday, apparently looking for another leg to the downside. More than 35,000 May 4 puts were bought throughout the session, with premiums rising from $0.88 to $0.97.
Puts fix the price where a stock can be sold, so they can appreciate when shares decline. For example those May 4s will roughly double in value if JCP loses about one-third of its value by expiration. (Should it rally above $4 they’ll expire worthless.)
Another benefit of puts is that there’s limited risk in the event of a rally. (See our Knowledge Center for more.) Unlike short-selling, the trader can only lose their initial outlay. That can be prudent in a name like JCP, which already has massive bearish positioning based on short interest.
E-commerce, weak mall traffic and a debt-choked balance sheet are the main culprits. Management has tried to staunch the bleeding with store closures, but seems to be having less success than smaller peers like Abercrombie & Fitch (ANF) and Lululemon (LULU).
JCP ended the session down 4.75 percent at $3.21. The last big blow came on March 5, when weak guidance pushed the stock below its 50-day moving average. That could make some trend followers expect further selling pressure.
Total option volume in JCP was triple the monthly average on Friday. Puts outnumbered calls by a bearish 11-to-1 ratio.
DISCLAIMER: Options trading may not be suitable for all investors.