$LCI put prices rocket tenfold

Bearish option traders made a killing as shares of Lannett plunged today.

On June 15, Investitute’s proprietary programs flagged the purchase of 18,400 September $12.50 puts for $0.65 to $0.85 with shares at $15.95. These were clearly new positions, as open interest in the strike was only 243 contracts before the trades occurred.

Those puts sold for as much as $7.04 today, more than 10 times their initial purchase price. The stock plummeted 66% in the same time period, underscoring how options can far outperform 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.

LCI ended today’s session at $5.35, down 60.37%. The generic-drug maker dropped sharply after losing a contract with key suppler Jerome Stevens Pharmaceuticals to Lannett rival Amneal Pharmaceuticals.