Bears post 14-fold gains in $TXT

Downside option positions in Textron rocketed higher after a poor earnings report today.

On Oct. 1, Investitute’s proprietary programs flagged the purchase of 6,500 October $70 puts for $0.85 to $0.89 as part of a bearish spread with shares at $71.80. This was clearly a new position, as open interest in the strike was only 438 contracts before that session began.

Those puts traded for $12.48 just before the closing bell this afternoon, more than 14 times their purchase prices. The stock fell 19.85% in the same time frame, underscoring 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.

TXT dropped 11.25% to $57.49 today. The aircraft maker missed quarterly estimates and issued a weak outlook this morning.