$GT bears triple their money

Goodyear Tire & Rubber (GT) is down sharply since posting poor quarterly results last month, resulting in exponential profits on downside option positions.

On May 13, Investitute’s proprietary programs flagged the purchase of 6,800 January $13 puts for $0.60 as part of a bearish roll with shares at $16.32. Open interest in the strike was a mere 42 contracts before the trade occurred, showing that this was a new position.

Those puts have traded for as much as $2.01 so far today, almost 3.5 times their purchase price. The stock dropped 27.88% in the same time period, a large move but nowhere near that of its options 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.

GT is down 3.85 to $11.75 in midday trading. The tire maker missed earnings and revenue estimates on July 26.