$LGND bears triple their money

Ligand Pharmaceuticals fell sharply in midday trading today, handing huge gains to downside option traders.

On Jan. 10, Investitute’s proprietary programs flagged the purchase of 1,750 February $120 puts for $6.90 as part of a bearish spread with shares at $133.50. Open interest in the strike was a mere 9 contracts before the trade occurred, showing that this was a new position.

Those puts traded for as much as $25 this afternoon, more than 3.5 times their purchase price. The stock dropped 25.1% 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.

LGND dropped 16.48% to $110.05. The drug maker plunged after short-selling firm Citron Research said the stock “has 80% downside” potential and gave it a $35 price target.