Bears double their money in $SN

Sanchez Energy hit a new 52-week low yesterday, handing big gains to downside option traders.

On Jan. 19, Investitute’s proprietary programs cited the purchase of 14,350 February $6 puts for $0.85 with shares at $5.37. This was clearly a new position, as open interest in the strike was only 1,723 contracts before the session began.

Those puts traded for $2.25 yesterday, more than 2.5 times their purchase price. The stock dropped 29.4% in the same time frame, a large move but far less than 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.

SN fell to a 52-week low of $3.58 yesterday afternoon before bouncing to close at $3.83, up 1.86% on the session. The oil and natural-gas producer has been declining since releasing a disappointing operational update at the end of last week.