$GPS bears triple their money

Poor quarterly results from The Gap (GPS) gave downside option traders their third winning trade this month.

On May 28, Investitute’s proprietary programs showed that 2,000 Weekly $23 puts expiring this afternoon were bought for $1.75 to $1.88 with shares at $21.58. This was clearly fresh buying, as volume was well above the strike’s previous open interest of 1,273 contracts.

Those puts sold for as much as $5.70 today, more than 3 times their purchase prices. The stock dropped 19.92% in the same time frame, underscoring how quickly options can far outperform moves in their underlying shares on a relative basis.

It is the third winning trade in the name posted on Investitute since May 13.

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.

GPS was down 9.32% to $18.68 today. The apparel retailer lowered its full-year outlook after earnings and sales missed estimates last night.