Bears watch big gains in $DISCA

Discovery Communications (DISCA) is falling sharply for a fourth session today, delivering big gains to downside option traders.

On Mar. 19, Market Rebellion’s Unusual Activity Service identified the purchase of 4,000 May $75 puts for $9.20 to $9.73 with shares at $77.94. This was clearly fresh buying, as open interest in the strike was only 2,930 contracts before the activity appeared.

Those puts have traded for as much as $29.70 so far this session, over 3 times their purchase prices. The stock fell 41.13% in the same time frame, illustrating the kind of leverage that can be achieved quickly with options.

This winning trade comes after bullish option traders scored giant gains on upside positions just last month, showing how nimble option traders can take advantage of underlying moves in either direction.

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.

DISCA was last down by 8.16% to $54.94this afternoon. The media company was downgraded to Equal Weight from Overweight at Wells Fargo this morning, which also lowered its price target on the shares to $59 from $65.