Bears rack up profits in $JWN

Downside option positions yielded exponential gains as Nordstrom fell today.

On May 2, Investitute’s proprietary programs found that 2,500 Weekly $40.50 puts expiring this Friday were bought for $1.85 as part of a bearish spread with shares at $40.94. This was clearly a new position, as open interest in the strike was a mere 5 contracts before that session began.

Those puts were marked at $6.33 this afternoon, about 3.5 times their purchase price. The stock dropped 16.54% in the same time frame, illustrating 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.

JWN fell 9.25% to $34.35 today. The upscale retailer missed quarterly estimates and lowered its full-year outlook after the market closed yesterday.