Big traders bet it will get even worse for JC Penney

Adam Jeffery | CNBC

It's already been a tough August for J.C. Penney. But big traders are betting that things will get worse before they get better.

J.C. Penney is a struggling department store chain that has suffered from poor management, and is currently trading at a low it has not seen since 2001. When the company decided to replace former CEO Myron Ullman with Ron Johnson (the man behind Apple's very profitable stores) in November 2011, the stock soared to highs it had not seen since before the financial crisis.

But Johnson was unable to turn JCP around, and instead of focusing on new avenues for revenue (such as the Internet), focused on the pricing strategy, which had previously been coupon-driven. The board was frustrated with the performance, and rehired Ullman—which resulted in an immediate 10 percent drop in the stock price.

As of Wednesday, JCP has been down for the past seven consecutive trading days, and the future of the company looks pretty grim. Last week there were rumors of a credit cutoff by CIT Group to some of J.C. Penney's vendors, which sent the stock down 10 percent for that day. The New York Post, after reporting the original news (which JCP denied), consequently said CIT's "clamp" had been lifted, but that wasn't of much help to the battered stock.

(Read more: Citi downgrades JC Penney stock to 'sell')

JCP has traded all the way down to $12.50, meaning it fell more than 60 percent from the 52-week high. Big-name hedge fund managers George Soros and Bill Ackman have been in the news backing the company and citing the potential for growth, but it's the short traders on the other end of those positions who have been raking in the profits.

One trader made a bearish move on Tuesday by buying a calendar put spread. One big trader sold the Aug. 12-strike puts that expire next week, and bought the weekly 12-strike puts that expire on Aug. 23. The trader bought the spreads for 46 cents a piece, and appears to be expressing a nuanced opinion on the stock.

In short, the trader appears to believe that J.C. Penney shares will hold above $12 over the next 10 days, but then fall below that level in the week that follows.

On Wednesday, another big trade expressed an even more bearish take on the company. It was for 10,000 Sept.10-strike puts at 59 cents each, which cost the trader $590,000. This trade makes money if J.C. Penney falls below $9.41—a 26 percent drop in price—by the time that September expiration rolls around.

(Read more: JC Penney sales set to get back-to-school boost)

Tuesday's big trade indicates that the trader believes the stock can hold out above the $12 mark before dipping, while the second takes a simple and to-the-point stance that this stock is going down the drain.

So with earnings coming up on Aug. 20, these traders are providing two different ways to bet that things are about to get even worse for the struggling retail company.

Disclosures: None to report.

Brian Stutland is managing member of Stutland Equities and a contributor to CNBC's "Options Action." Follow him on Twitter: @BrianStutland