$JNJ puts quintuple in hours

Option traders who opened bearish positions in Johnson & Johnson early this morning were collecting exponential profits by lunchtime.

Just after the opening bell, Investitute’s proprietary programs flagged the purchase of 5,800 December $140 puts for $0.60 to $1.45 and 6,000 January $140 puts for $1.90 to $2.70 with shares at $142.18. Volumes were above the previous open interest in both strikes, indicating this was fresh buying.

The December puts traded for $10.35 and the January contracts for $10.90 before noon ET, about 5 times their average purchase prices. The stock fell 8% at the same time, showing how quickly options can far outpace 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.

JNJ dropped 10.04% today to close at $133 even. Shares fell after Reuters reported that the health-care products company knew for decades that baby powder contained small amounts of asbestos, an article that Johnson & Johnson management called “false and inflammatory.”