Bears pound out profits in $MT

ArcelorMittal has fallen sharply in recent weeks, resulting in huge gains on downside option positions ahead of its earnings report tomorrow.

On April 17, Investitute’s proprietary programs showed that 5,000 Weekly $22.50 puts expiring this Friday were bought for $0.34 to $0.38 with shares at $23.89. This was clearly fresh buying, as open interest in the strike was a mere 10 contracts before that session began.

Those puts were marked at $2.67 at the closing bell, more than 7 times their purchase prices. The stock dropped 18.12% in the same time frame, underscoring how options can far outperform moves in their underlying shares on a relative basis.

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.

MT was down 2.% to $19.56 today. The steel maker, which reduced production this week on waning demand, has fallen along with other companies in its space on uncertainty over U.S.-China trade negotiations. Quarterly results are scheduled for tomorrow before the market opens.