$LEG puts score for bears

Option traders turned major profits today in downside positions opened in Leggett & Platt ahead of its quarterly earnings report.

On Apr. 23, Investitute’s tracking systems detected the purchase of 4,000 May $45 puts from $2.20 to $2.40 with shares at $43.33. This was clearly a new position, as the volume from that single trade was well above the strike’s previous open interest of just 4 contracts.

Those puts closed marked at $5.30 today, well over double their purchase prices. The stock fell 8.77% in the same time frame, 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.

LEG dropped to $38.90 in early trade as an intraday low but pulled back higher to close up by 0.43% at $39.53 today. Shares of the diversified manufacturer have fallen since it reported earnings the morning of April 30, where it missed estimates on both the top and bottom lines.