Bears score large profits in $CBI

Chicago Bridge & Iron fell sharply today, resulting in big gains for downside option positions.

On March 28, Investitute’s proprietary programs flagged the purchase of 2,100 July $15 puts for $1.70 to $2.15 with shares at $14.81. These were clearly new positions, as open interest in the strike was only 969 contracts before the activity appeared.

Those puts traded as highs as $3.80 today, more than twice their initial purchase price. The stock declined 15.8% in the same time frame, underscoring how options can 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.

CBI dropped 9% to $12.43 today. This morning energy producer McDermott urged shareholders to approve a merger with the engineering and construction company.