$CAT put prices rocket sixfold

Option traders who opened bearish positions in Caterpillar at the end of last week were posting huge gains only three sessions later.

On Oct. 19, Investitute’s proprietary programs found that 11,000 Weekly $132 puts expiring this Friday were purchased for $2.32 to $2.69 with shares at $134.40. These were clearly new positions, as open interest in the strike was only 274 contracts before that session began.

Those puts traded for as much as $15.88 today, more than 6 times their average purchase price. The stock fell 13.65% in the same time frame, showing 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.

CAT dropped 7.56% to $118.98. The stock declined even though the construction-equipment giant beat earnings and revenue expectations before the market opened this morning.