$AAP bears clock big gains

Bearish put positions opened last month on Advance Auto Parts (AAP) are clocking big gains today.

On Aug. 23, Market Rebellion’s Unusual Option Activity Service found that 11,700 October $40 puts were bought for $0.50 with shares at $49.90. This was clearly fresh buying, as open interest in the contract was just 123 before the activity appeared.

Those puts have traded for as much as $2.80 so far this session, a 460% return, while the stock fell 20.5% in the same time frame, illustrating the kind of leverage that can be achieved quickly with options.

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.

AAP was last at $39.83, down 1.56% on the day.