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June 14, 2013  Fri 11:14 AM CT

JCP: SEE CHART GET CHAIN FIND STRATEGIES
J.C. Penney continues to pull back today, and one large trade is positioning for further downside in the stock.

optionMONSTER systems show that a trader has sold more than 8,000 June 17 puts for $0.13 against previous open interest of more than 21,000 contracts. A the same time, he or she bought the same numbers of the July 17 puts for $0.73 in volume that was twice the open interest in that strike, clearly indicating that this is a new position.

The trader is rolling the June puts, which expire a week from today, to allow more time for the trade to work. This could be an outright bearish play, but it is quite likely a protective hedge on a long-stock position. (See our Education section)

JCP is down 2.26 percent to $17.74 in early afternoon trading. Shares of the department-store operator have support around this level but have been trending lower after failing to break upside resistance at $20 last month. The stock was below $14 at the start of April.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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