Bears nail major gains in $LL

Weak quarterly results in Lumber Liquidators led to strong profits for downside options positions.

On June 20, Investitute’s proprietary systems flagged the purchase of 2,951 August $28 puts for $3.20 with shares at $26.65. This was clearly fresh buying, as open interest in the strike was a mere 30 contracts before that session began.

Those puts were marked at $9.20 at the end of trading today, nearly 3 times their purchase price. The stock declined 27.43% in the same time period, a large move but nowhere near that of its options.

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.

LL plunged 20.64% today to $19.34. The hardwood-flooring retailer missed earnings and revenue expectations this morning.