Bears rack up tenfold gains in $Z

Downside option positions turned astronomic profits today on poor quarterly results from Zillow.

On Sept. 13, Investitute’s proprietary programs flagged the purchase of 3,000 November $40 puts for $0.90 and $0.95 with shares at $47.14. This was clearly a new position, as volume was more than double the strike’s open interest of 1,234 contracts before that session began.

Those puts traded up to $9.62 this afternoon, more than 10 times their purchase prices. The stock plunged 35.62% in the same time period, 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.

Z plummeted 26.92% to $29.99 today. The real-estate company fell sharply after reporting weak revenues and guidance last night.