$FB bears quadruple money

Downside option positions have made a killing in Facebook as shares plummeted.

On Aug. 27, Investitute’s tracking systems detected the purchase of 2,000 September $177.50 puts for $3.95 as part of a bearish spread with shares at $178.04. This was clearly a new position, as open interest in the strike was only 808 contracts before the trade occurred.

Those puts sold for $16 this morning, 4 times their purchase price. The stock fell 9.22% in the same time frame, illustrating 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.

FB opened lower this morning at $160.45 but traded up to close at $163.04 today, or a 0.31% gain, after falling steadily in the last week. Social-media stocks declined as congressional committees held hearings into possible political interference and bias on their networks.