Bears dunk on gains in $MDLZ

Bearish option traders nearly doubled their money in Mondelez (MDLZ) today after quarterly results.

On Jan. 14, Market Rebellion’s Unusual Activity Service found that 5,000 Weekly $57.50 puts, expiring this today, Jan. 29, were bought for $1.28 to $1.38 as part of a complex bearish spread with shares at $57.35. Open interest in the strike was only 103 contracts before the trades occurred, indicating that this was new positioning.

Those puts traded as high as $2.30 today, nearly two times their purchase prices. The stock declined 4.17% in the same time period, illustrating how options can far outperform their underlying shares.

Despite the fast, hefty, return on the single put leg, the complex bearish spread performed even better. In that spread, an equivalent number of the $54 strike puts were sold for $0.36 to $0.25 and also $59.50 strike calls were sold for $0.53 to $0.36; bringing the total initial outlay in the trade to roughly $0.77, and upon the close today the entire complex bearish spread (a Bearish 3-Way) was marked for $1.82, better than a 230% return on the total initial outlay, given that the short strikes closed out-of-the-money.

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.

MDLZ closed down by 2.94% to $55.44 today. The snack and beverage company topped earnings estimates after the closing bell yesterday, Jan. 28.