Bears score twice in $STLD

Steel Dynamics has fallen sharply since October, and bearish positions are paying off.

Investitute’s systems came across two similar bearish trades placed within the past two weeks. Both positions have generated significant profits as STLD trades down near two-year lows:

–On Nov. 26, 5,000 December $35 puts were purchased for $0.57 as part of a bearish roll with shares at $37.89. The puts traded for $3.48 today, more than 6 times their purchase price, while the stock dropped 16.7%–a large move but nothing compared to its options on a relative basis.

–On Dec. 4, 5,000 December $32 puts were bought for $0.32 as part of a bearish roll with shares at $35.01. Those contracts traded up to $1.20 today, a profit of 275%, while shares lost 10.1%, illustrating the kind of leverage that can be achieved with options.

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.

STLD fell 1.73% to $31.26 today. The steel maker has fallen alongside its peers as the outlook for global growth has weakened in recent months.