Bearish bets in $SPY pay off big

Bearish option traders collected huge gains as the SPDR S&P 500 Fund dropped today.

On Oct. 4, Investitute’s tracking systems found that 5,600 Weekly $285 puts expiring on Nov. 2 were purchased for $2 with shares at $289.42. This was a new position, rolled from an expiring spread dated Oct. 5.

Those puts were traded for as much as $9.79 today, nearly 5 times their purchase price. The stock fell 4.77% in the same time frame, 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.

The SPDR S&P 500 Fund (SPY) was down 1.44% today to close at $276.40. Rising interest rates and ongoing global trade concerns have influenced downside volatility over the course of the past week.