Bears score big as $NTRI plunges

Downside option positions posted exponential returns today after Nutrisystem issued a weak outlook last night.

Last Thursday, Investitute’s proprietary programs cited the purchase of 3,000 March $35 puts for $1 as part of a bearish spread with shares at $40.45. Open interest in the strike was a mere 71 contracts before the trade occurred, showing that it was a new position.

Those puts traded for $6.80 today, nearly 7 times their purchase price. The stock dropped 29.5% in the same time frame, illustrating how options can far outperform moves in their underlying shares.

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.

NTRI tumbled 21.55% to $31.30 today. The weight-loss company fell sharply on disappointing guidance after the market closed yesterday.