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Traders betting on Penney

J.C. Penney stock has soared 37 percent this year, and now some traders are betting the rally will continue when the company reports earnings Wednesday after the bell.

On Tuesday, when options volume was twice its daily average, traders spent almost $500,000 that shares of J.C. Penney will rise nearly 5 percent by the end of the week.

According to options expert Mike Khouw, the traders may be betting J.C. Penney will see a move similar in magnitude to how it has done in the recent past. Over the last eight quarters, J.C. Penney's stock has moved an average of 10 percent after earnings in either direction. Specifically, the traders snapped up 17,000 call contracts for 30 cents each. A call is a bullish wager giving purchasers the right to buy a stock at a set price within a specific timeframe.

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A J.C. Penney store in Brooklyn, New York.
Getty Images
A J.C. Penney store in Brooklyn, New York.

Given the magnitude of J.C. Penny's previous moves, spending 30 cents "probably makes sense if you're looking to make a bullish bet," said Khouw. However six of the last quarters have all seen downside moves averaging 7 percent.

Khouw sees some uncertainty in the market's view of CEO Myron "Mike" Ullman, who was brought back to the helm two years ago to replace Ron Johnson.

"Investors are trying to figure out what's going on now that Mike Ullman has come back to the company to straighten things out," said Khouw.

Ullman will step down as CEO in August, though he will remain executive chairman.

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