Ackman is gone but options market sees more risk for JC Penney

Thu Aug 15, 2013 1:48pm EDT
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By Doris Frankel

(Reuters) - Activist hedge fund investor William Ackman may be off the board of J.C. Penney Co Inc (JCP.N: Quote), but concerns about the U.S. department store chain's prospects have pushed bearish bets to record levels in the U.S. options market.

With Ackman stepping down from Penney's board on Tuesday after a public spat with fellow board members, the focus is shifting to the company's quarterly earnings due on August 20.

The options market suggests a move of at least 16 percent in the shares in either direction after the results are released.

"J.C. Penney is heading into earnings next week with questions about the sustainability of the business," said Steve Place, a founder of options analytics firm investingwithoptions in Austin, Texas.

Concerns about Penney's struggles have boosted bearish positions in its shares to a new peak. As of Thursday morning, total put open interest stood at a record 845,000 contracts, more than double the 400,000 contracts since July 23, according to Trade Alert, an options analytics firm.

A buyer of put options has the right to sell the shares by a given date at a specific price; these contracts are often used to express a bearish outlook on a stock, or as a hedge against losses.

By comparison, call open positions increased to a total of 568,000 contracts, though that is below levels seen in May. Much of Thursday's call open interest growth is in far-dated contracts that expire in January 2015, Trade Alert said.

A total of 1.44 million options changed hands in Penney over the two weeks beginning August 1, with 65 percent of the volume in puts, Trade Alert President Henry Schwartz said.   Continued...

Customers ride the escalator at a J.C. Penney store in New York August 14, 2013. REUTERS/Brendan McDermid