Bears score big as $EA plunges

Option traders quadrupled their money overnight on downside positions in Electronic Arts.

Just yesterday, Investitute’s proprietary programs flagged the purhcase of 2,900 February $89 puts for $2.70 to $2.83 as part of a bearish spread with shares at $90.71. This was clearly a new position, as open interest in the strike was only 80 contracts before the trade occurred.

Those puts sold for as much as $10.70 this morning, about 4 times their initial purchase price. The stock fell 13.81% at the same time, showing how quickly options can far outperform moves in their underlying shares on a relative basis.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

EA closed at $80.21 today, down 13.31% on the session. The video-game developer missed quarterly estimates and lowered its outlook after the market closed yesterday.