$AIG puts rocket sixfold overnight

Bearish option traders racked up huge gains today after American International Group fell sharply on poor quarterly results.

Just yesterday, Investitute’s proprietary programs found that 2,700 Weekly $54 puts expiring tomorrow were purchased for $0.66 to $0.68 with shares at $55.05. This was clearly fresh buying, as open interest in the strike was only 216 contracts before the trades occurred.

Those puts sold for $4.40 today, more than 6 times their purchase prices. The stock dropped 9.8% at the same time, underscoring 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.

AIG was down 5.29% today to close at $51.94. The insurance giant’s earnings fell short of expectations after yesterday’s close.