$GE keeps on giving for bears

It took just over a week for option traders to double their money in downside positions in General Electric (GE).

On Aug. 7, Our market scanners found that 66,818 October $8 puts were bought for $0.18 as part of a bearish roll with shares at $9.38. Open interest in strike was only 56,337 contracts before that session began, showing that this was a new position. This bearish trade on the industrial company came just a week after Co-founder Pete Najarian cited other unusual activity in the name on CNBC’s “Halftime Report,” which carried an outperforming return on this same day.

Those October 8 puts have traded for as much as $0.41 today, more than 2 times their purchase price. The stock fell 10.23% in the same time frame, illustrating how quickly options can far outperform moves in their underlying shares on a relative basis.

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.

GE is down 6.2% to $8.47 this morning. The industrial company has fallen after Harry Markopolos, of the Bernie Madoff Ponzi scheme, announced the release of a 170 page report on the company’s accounting.