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Will J.C. Penney Pop On Earnings?

David Russell|Writer, OptionMonster
Wednesday, 2 May 2012 | 6:58 AM ET

J.C. Penney

J.C. Penney
AP
J.C. Penney

has seen some bullish activity recently, and one big investor is betting that a rally may come even sooner.

There was a surge of options volume in the department-store operator yesterday, with the August and May months especially active. It appears that a trader was closing a complex three-way strategy involving the August 29 puts, the August 33 calls, and August 39 calls. The investor was probably net short calls at the higher strike, which could expose him or her to unlimited losses if J.C. Penney rallies too far too fast.

J.C. Penney

Less than two minutes after terminating that position, the trader bought more than 9,000 May 39 callsfor $0.365. That creates a much simpler long position without carrying risk if the stock rises too much. Taken together, the activity reflects a belief that the shares could make a dramatic move in the short term — possibly following the next earnings release on May 15.

J.C. Penney shares fell 1.08 percent to $35.67 yesterday. The stock surged after the company’s last quarterly report in January, but then pulled back before bouncing at its 200-day moving average.

Overall option volume in the name was four times greater than average in the session.

—Russell has no positions in JCP.

Additional News: J.C. Penney Ousts Chief Financial Officer Amid Overhaul

Additional Views: Karabell Burned by J.C. Penney

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David Russellis a reporter and writer forOptionMonster .

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