$KHC puts post fourfold gains

Bearish option traders made a killing on downside positions in Kraft Heinz today.

On Jan. 30, Investitute’s market scanners identified the purchase of 10,000 March $50 puts for $3.80 to $4.20 with shares at $46.83. This was clearly fresh buying, as open interest in the strike was a mere 14 contracts before that session began.

Those puts traded for as much as $15.90 today, 4 times their average purchase price. The stock fell 26.2% in the same time period, a large move but nowhere near that of its options.

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.

KHC plunged 27.46% to $34.95 today. Last night the food company missed fourth-quarter estimates, reduced its dividend, and announced that the Securities and Exchange Commission is investigating its accounting practices.