Bears triple money in $MNK

Option traders have logged big profits on downside positions in Mallinckrodt (MNK).

Last month, Market Rebellion’s proprietary programs flagged two instances of bearish activity over three days:

–On Aug. 5, 8,000 October $7 puts were bought for $1.70 above open interest of 7,711 contracts with shares at $6.32.
–On Aug. 7, 7,500 October $6 were puts bought for $1.65 to $1.80 above open interest of 653 contracts with shares at $5.27.

Those puts were marked at $5.44 and $4.44 this morning, respectively, both more than 3 times their purchase prices. The stock plunged more than 70% in the same time period, but even that large loss was 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.

MNK closed last week at $1.87. Bloomberg reported last week that the drug company is exploring a possible bankruptcy filing related to the fallout from opioid issues.