J.C. Penney trade sees limited upside

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J.C. Penney bounced late yesterday to close in positive territory, but one trader doesn't see a rally in the near future.

More than 31,000 JCP options traded yesterday, more than triple its daily average. Topping the action was a call diagonal spread.  

optionMONSTER's systems show that a trader bought 4,000 April 37 calls for the ask price of $0.20 against open interest of 6,465 contracts. At the same time, he or she sold 4,000 May 36 calls at the bid of $1.20 at volume that was more than twice the previous open interest, making this a new opening spread.

This action appears to rolling a short-call position to a lower strike price in a later-dated contract. That would mean that the trader bought back the calls in April to sell the next strike down in May.

Many option sellers buy back contracts at minimal costs (like $0.20) to give the position more time to work. In this case, the move to a lower strike also suggests that the trader sees little to no upside in JCP shares. (See our Education section)

JCP was up 1.13 percent to close out the day at $35.66 but has been trending steeply lower since hitting a 52-week high of $43.18 in early February, closing below its 10-day moving average for the last six weeks. The department-store operator was down at $34.72 in the morning, its lowest level since Jan. 26, before rebounding.

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