$LB bears triple their money

Downside option traders made a killing today as L Brands dropped following weak guidance.

On Aug. 17, Investitute’s proprietary programs found that 2,000 Weekly $31 puts expiring this Friday were purchased for $0.85 as part of a bearish spread with shares at $32.18. This was clearly a new position, as open interest in the strike was only 223 contracts before the trade occurred.

Those puts sold for $3.08 today, more than 3.5 times their purchase price. The stock fell 13.08% 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.

LB plunged 11.41% to $28.25 today. The company, whose brands include Victoria’s Secret and Bath & Body Works, lowered its outlook for the second time this year after the market closed yesterday.