$MIK put prices surge fivefold

Bearish option traders made a killing in Michael’s this week.

On Aug. 29, the eve of the company’s quarterly results, Investitute’s proprietary programs flagged the purchase of 10,200 September $17.50 puts for $0.20 with shares at $20.21. Volume in the strike was only 554 contracts before the trade occurred, showing that this was a new position.

Those puts sold for $1 this morning, 5 times their purchase price. The stock dropped 17.57% in the same time frame, showing how options can far outpace moves in their underlying shares 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.

MIK was off 0.12% today to close at $16.99, one session after gapping down from the $20 level. The crafts-supplies retail fell sharply after reporting weak sales yesterday morning.