Bears double their money in $LB

Downside option traders doubled their money today as L Brands (LB) dropped following its quarterly earnings report.

On Aug. 13, Our proprietary programs found that 3,500 September $25 puts were purchased in-the-money for $3.10 to $3.17 with shares at $23.21. This was clearly a new position, as open interest in the strike was only 3,337 contracts before the trade occurred.

Those puts have traded for $7.20 today, more than double their purchase prices. The stock fell 23.35% 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 has dropped, intraday, by 9.91% to $18.32, just off a new 52-Week low of $17.61 made earlier this session. The company, whose brands include Victoria’s Secret and Bath & Body Works, modestly beat earnings expectations but missed on revenues after the closing bell yesterday, while also lowering its guidance for next quarter’s earnings-per-share to below the consensus.