$CAT puts post 16-fold gains

Bearish option traders turned huge profits in Caterpillar today for the second session in a row.

On Oct. 22, the eve of the company’s quarterly results, Investitute’s tracking systems found that 2,000 Weekly $116 puts expiring this Friday were purchased for $0.26 with shares at $130.88. This was clearly a new position, as open interest in the strike was a mere 3 contracts before the activity appeared.

Those puts traded up to $4.32 this afternoon, more than 16 times their purchase price. The stock fell 14.17% in the same time frame, underscoring how options can far outperform moves in their underlying shares. It was the second winning trade in CAT posted on Investitute in as many days.

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 was down 5.58% to $112.34 today. Shares continued to drop even though the construction-equipment maker topped earnings and revenue estimates yesterday morning.