Bears score ninefold gains in $IYT

Option traders who opened downside positions in the iShares Transportation Average Fund last week collected huge profits today.

On Oct. 2, Investitute’s proprietary programs flagged the purchase of 5,000 October $200 puts for $1.25 as part of a bearish spread with shares at $203.77. This was clearly a new position, as open interest in the strike was only 214 contracts before trade occurred.

Those puts sold for $11.85 this afternoon, 9.5 times their purchase price. The stock dropped 7.5% in the same time frame, underscoring how quickly 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.

IYT fell 1.46% to $187.01 today. Losses accelerated in the exchange-traded fund since it fell below its 50-day moving average early this month.