Bears quintuple their money in $CXO

Downside option positions yielded exponential returns today as Concho Resources (CXO) continued to plummet after its earnings report.

On Jul. 15, Investitute’s market scanners showed that 5,900 January $70 puts were purchased in one print for $1.80 with shares at $100.09. This was clearly a new position, as open interest in the strike was just 33 contracts before that session began.

Those puts sold for $9.10 today, more than 5 times their purchase price. The stock has fallen 32.83% in the same period, 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.

CXO is currently down 4.9% to $66.80, its worst trading level since 2011. The hydrocarbon explorer, which missed on its top and bottom lines during its July 31 earnings report, was downgraded to Underweight from Overweight by Morgan Stanley this morning, which also lowered its price target on the shares to $64 from $131.