Some investors are calling limited downside in J.C. Penney (NYSE: JCP, Stock Forum) and Costco Wholesale (NASDAQ: COST, Stock Forum) and expressing that bet by selling puts.
Looking at the Nov. 30 puts in JCP, 7,000 of these contracts changed hands yesterday with the stock trading at $29.78 a share. These puts were trading down 75 cents and were home to open interest of 8,500 contracts. The Nov. 30 puts had a volume weighted average price of $3.8798, indicating the average price at which these options traded.
JCP shares, were up $1.02 on the day to $29.72, rallied 100% since reaching a 52-week low of $14.20 on March 9, and it looks like at least one investor is betting the stock will hold above $26.13, which is the breakeven on this trade.
Back in June, we saw a bearish investor buy more than 8,200 of these Nov. 30 puts for a price of around $4.80 with the stock trading at $30.25 a share. Yesterday, might have seen that same investor selling these puts to close; this is another example of how risk aversion is abating in the market.
COST Oct. 45 puts traded more than 12,800 times yesterday with the stock trading at $48.03 a share. These puts dropped 32 cents, and were home to open interest of 15,000 contracts. The VWAP of these puts was $1.6631. COST shares were trading up 53 cents on the day to $48.01, up 25% since its 52-week low of $38.44 reached on March 9.
Put selling like this is a sign of moderate bullishness. The investor is getting rid of protective puts that they owned because they do not expect the stock to drop by as much as the premium they are collecting, which is why we see it as limited bullish behavior, rather than a sign of a raging bull.
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