Long-term volatility play in Penney


Heavy put buying in J.C. Penney yesterday appears be part of a long-term volatility strategy.

More than 25,000 January 2016 4 puts traded in the session, mostly in blocks of 16,750 and 7,500 that were bought for $0.93, according to optionMONSTER's Depth Charge tracking system. The volume was more than 10 times the strike's previous open interest, clearly showing that new positions were established.

Corresponding prints of JCP stock traded just after the puts appeared, as a blocks of 167,500 and 75,000 shares were bought for $8.91. The combination of stock and options created an overall play that is delta-neutral , rather than betting on a specific direction. This means that the trader is looking for a big move higher or lower and/or for the stock's volatility to be greater than that implied by the options' premium. (See our Education section)

JCP fell 1.45 percent to $8.83 yesterday. The troubled department-store operator has been trapped in a range between $8 and $9 for the last month.

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