Bears triple their money in $BBY

Best Buy shares dropped with a key downgrade today, yielding exponential gains on downside option positions.

Early last month, Investitute’s tracking systems detected heavy volume in the same put strike on consecutive sessions:

–On Friday, Nov. 2, 2,800 December $75 puts were purchased for $7.10 and $7.15 above open interest of 1,065 contracts with shares $70.74.
–On Monday, Nov. 5, 7,033 December $75 puts were bought for $6.69 to $6.80 above open interest of 367 contracts as part of a bearish spread with shares at $71.23

Those puts sold for as much as $23 this afternoon, more than 3 times their purchase prices. The stock fell 27.2% in the same time period, 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.

BBY was down 5.67% to $52.23 today. Bank of America / Merrill Lynch downgraded the electronics retailer to “underperform” from “neutral” and slashed its price target to $50 from $70, citing caution on television, gaming, and Apple (AAPL) products.