JCG – J. Crew Group, Inc. – J. Crew popped up on our ‘hot by options volume’ market scanner after one investor appears to have initiated a contrarian transaction using December contract put options. Shares of the retailer of high-quality clothing and accessories for men, women and children rallied 2.5% this afternoon to secure an intraday high of $33.69. The options player purchased a plain-vanilla debit put spread on the stock today ahead of the firm’s second-quarter earnings report slated for release after the closing bell on August 26. The trader picked up 2,500 puts at the December $30 strike for an average premium of $2.18 each, and sold the same number of puts at the lower December $25 strike at an average premium of $0.89 apiece. Net premium paid to enact the spread amounts to $1.29 per contract. Thus, the investor stands ready to make money should shares plummet 14.8% from the current price of $33.69 to breach the effective breakeven point to the downside at $28.71 by December expiration day. The put player is positioned to accumulate maximum potential profits of $3.71 per contract in the event JCG’s shares plunge 25.8% lower to trade under $25.00 by expiration. Analysts at UBS cut their target share price on JCG to $36.00 from $39.00 yesterday and rate the retailer as ‘neutral’.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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