Option Activity Alert: JCP, CROX, CSCO, KR

JCP – J.C. Penney Co., Inc. – Frenzied options trading ensued following reports that Ron Johnson, head of retail at Apple Inc., was named CEO of J.C. Penney Co. The news drove shares in the department store operator up 19.5% to $35.97by 1:40 pm in New York. The number of options in play on JCP today is approaching 171,000 contracts in afternoon trade, topping overall open interest on the stock of 160,338 contracts.Johnson’s appointment to JCP seems to have injected traders with a renewed sense of optimism on the department store owner. The previous four weeks were not kind to shares in J.C. Penney, which declined 27.3% since mid-May to $29.82 this past Friday.

Investors are exchanging roughly 1.6 call options on JCP for each single put option in action. June and July contract calls are the most active with in- and out-of-the-money call buying a seemingly popular strategy amongst traders. Investors who picked up calls a few hours ago at the start of the rally paid far less than the current asking price on the options in most cases. June $30 strike calls, for example, were purchased around 1,100 times earlier in the session for an average premium of $1.79 each. The now deep in-the-money calls currently tout a hefty price tag of $5.90 per contract. Trading traffic in options expiring this Friday ballooned during the session. Call volume at the June $32strike, the most at any single strike in the front month, is greater than 12,500 contracts against previously existing open positions of 3,818 contracts. Early-birds paid an average premium of around $0.46 per contract for those calls, which now have an asking price of $3.90 a-pop. July contract calls drew crowds, as well. The July $35 and $36 strike calls have traded 11,500 and 15,700 times, respectively.

Not all of the options players populating J.C. Penney are placing outright bullish bets on the stock. Put buyers may be locking in gains on the sharp rise in JCP shares, or are perhaps bracing for the stock to pull back once the initial excitement over the new CEO subsides. June $33, $34 and $35 strike put volume topped a combined 28,000 contracts as of 1:30pm. Call selling observed out at the July $36 strike suggests investors expecting shares to trade below that price through July expiration are happy to pocket an average premium of $1.21 per contract. Call sellers benefit from the rise in implied volatility on the stock today, but could suffer losses if the stock continues to climb ahead of expiration day next month. Options implied volatility on J.C. Penney is off its highs of the session, but remains elevated by roughly 12.2% to stand at 42.51% this afternoon.

CROX – Crocs, Inc. – The return of risk appetite after sales at retailers fell less than forecast in May inspired some options players to take a bite out of CROX call options this morning. Shares in the maker of light-weight footwear for men, women and children rallied as much as 3.3% during the session to an intraday high of $22.66. Bullish players positioning for shares in the shoe manufacturer to continue to rise scooped up calls in the July contract. It looks like more than 8,800 calls changed hands at the July $22 strike during the first half of the trading session against previously open interest of just 305 contracts. The majority of the calls appear to have been purchased at an average premium of $1.36 a-pop. Call buyers make money if shares in CROX increase 3.1% over today’s high of $22.66 to surpass the average breakeven price of $23.36 by expiration day in July. The heavily trafficked July $22 strike calls expire ahead of the shoe maker’s second-quarter earnings report on August 4. Shares in Crocs, Inc. reached their current 52-week high of $23.47 on May 31, which marked a 140% increase in the price of the underlying over the past year.

CSCO – Cisco Systems, Inc. – The world’s largest maker of networking equipment did not receive an invitation to today’s broad market rally, instead shares in Cisco Systems declined as much as 0.93% to $14.92. The stock was cut to ‘Underperform’ from ‘Outperform’ with a share price target of $14.00 down from $22.00 by analyst Mark Sue at RBC Capital Markets. Shares in the maker of switches and routers are at their lowest since March 2009, but it looks like some options traders are positioning for a near-term rebound in the stock. Investors traded more than 143,000 option contracts on Cisco Systems before 12:30pm in New York. Trading traffic is by far the heaviest at the July $15 strike where upwards of 52,100 call options changed hands against previously existing open interest of 19,532 contracts. Approximately 36,000 of the calls appear to have been purchased for an average premium of $0.48 a-pop. Perhaps call buyers suspect the stock has been dragged down to its lowest point and therefore could rise by expiration day next month. Investors getting long the calls at an average premium of $0.48 each profit if shares in Cisco rally 3.75% off today’s low of $14.92 to surpass the breakeven price of $15.48 by expiration in July. Options implied volatility on CSCO rose 7.3% this afternoon to 28.04%.

KR – Kroger Co. – Near-term bullish trading in options on the operator of supermarket and multi-department stores suggests some strategists are positioning for shares in Kroger to rally following the company’s first-quarter earnings report ahead of the opening bell on Thursday. Kroger failed to join the ranks in the market rally today, with shares in the name slipping 0.45% to $23.31 by 12:50pm on the East Coast. KR popped up on our ‘hot by options volume’ market scanner after traders exchanged more than 3,100 calls at the June $24 strike against open interest of 1,172 contracts. It looks like most of the call options were purchased for an average premium of $0.25 apiece. Buyers of the calls make money if Kroger’s shares rally 4.0% to surpass the average breakeven price of $24.25 by expiration on Friday.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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