$DLTR bears cash in quick profits

Dollar Tree dropped on a poor earnings report today, handing huge gains to downside option positions.

On Monday, Investitute’s proprietary programs found that 2,100 Weekly $101 puts expiring this Friday were purchased for $3 as part of a bearish roll with shares at $102.48. This was clearly a new position, as open interest in the strike was only 209 contracts before the trade occurred.

Those puts sold for $12.85 today, more than 4 times their purchase price. The stock fell 14.01% in the same time, showing how 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.

DLTR plummeted 14.48% to $89.25 today. The discount retailer missed fourth-quarter profit and sales projections this morning.