A little over a week ago, I pointed out that shorts are increasing along with a drop in the put/call ratio on J.C. Penney Company (JCP). At the time, I said that I was done buying puts on JCP. Since then, I decided to buy calls. The stock is now bouncing off 200DMA support. It is entirely possible that shorts are covering ahead of earnings on May 15th, but given the amount of negativity in the market and the negativity weighing on the stock, I doubt shorts are too concerned yet.
I am switching from bear to bull on JCP because the decline in the put/call ratio is in direct contrast to the rapid increase in the put/call ratio in early March when I noted that the put-buying was broad and comprehensive from March to May expirations. Those traders were correct then, and I am assuming they are correct now.
Be careful out there!
Full disclosure: long JCP calls