Bears gain from struggles at $LB

Downside option positions are paying off in L Brands, which has not recovered from its recent selloff after quarterly results.

On Feb. 8, Investitute’s proprietary programs flagged the purchase of 3,000 March $45 puts for $1.80 as part of a bearish spread with shares at $48.21. This was clearly a new position, as volume was far above the strike’s open interest of 961 contracts.

Those puts traded up to $3.85 this afternoon, more than twice their purchase price. The stock fell 14.5% in the same time period, showing 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 was down 0.63% today to close at $41.04. The parent of Victoria’s Secret gapped down from above $49 on March 1 after issuing weak guidance.