$M puts turn fourfold gains

Bearish option traders scored big today as shares of Macy’s (M) dropped on a poor earnings report.

On June 14, Investitute’s proprietary programs flagged the purchase of 6,000 August $21 puts for $1.28 to $1.33 with shares at $21.21. This was clearly fresh buying, as open interest in the strike was only 1,603 contracts before that session began.

Those puts traded for as much as $5.20 today, 4 times their average purchase price. The stock fell 24.9% in the same time period, 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.

M is down 14.51% to $16.55 in midday trading. The department-store operator missed quarterly expectations and lowered its outlook this morning.