Bears triple money in $ALKS

Shares of Alkermes have fallen with analyst downgrades, handing exponential gains to option traders with bearish positions in the drug maker.

On Oct. 24, Investitute’s proprietary programs flagged the purchase of 2,600 December $40 puts for $2.80 to $3.15 as part of a bearish roll with shares at $41.31. This was clearly a new position, as open interest in the strike was only 299 contracts before that session began.

Those puts ended today’s session marked at $9.50, more than 3 times their purchase prices. The stock plunged 27.64% in the same time period, a large move but nowhere near that of its options 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.

ALKS dropped 6.07% to $29.89 today. Goldman Sachs downgraded the biopharmaceutical company last night to “sell” from “neutral” and slashed its price target to $26 from $49, a few sessions after Credit Suisse lowered the name two notches to “underperform” from “outperform” with a $31 target.