Bears hit mark as Seagate misses

Downside option positions large profits today after Seagate Technology’s poor quarterly results.

On April 11, Investitute’s proprietary programs found that 2,800 September $43 puts were purchased for $2.70 to $2.95 with shares at $48.14. This was clearly fresh buying, as open interest in the strike was only 417 contracts before that session began.

Today those puts traded for $10.43 today, more than tripling in value. The stock fell 32.2 percent in the same period, showing how options can far outperform 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.

STX dropped 16.5 percent to close at $33.20 today. The computer hard-drive and data-storage company declined sharply after earnings and revenue misses expectations in its quarterly report before the market opened.