$DRI bears feast on quick profits

Downside option positions quadrupled overnight in Darden Restaurants.

Just yesterday, Investitute’s proprietary programs flagged the purchase of 4,700 April $90 puts for $1.23 to $1.60 as part of a bearish spread with shares at $95.49. This was clearly a new position, as open interest in the strike was only 129 contracts before the trade occurred.

Those puts rose to $5.05 today, more than 4 times their original purchase price. The stock rose 9.9% at 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.

DRI dropped 7.9% to $85.94 today. The restaurant operator, whose chains include Olive Garden and LongHorn Steakhouse, beat earnings estimates but fell short on revenues this morning.