$NCLH bears double their money

Shares of Norwegian Cruise Line (NCLH) are sinking lower today, delivering a wave of profits to downside option positions opened less than a week ago.

Last Friday afternoon on Jun. 19, our Unusual Activity Tracking systems found that 5,500 Weekly $19 puts expiring this Friday, Jun. 26 were bought for $1.14 to $1.85 with shares at $18.10. This was clearly fresh buying, as volume was well above the strike’s existing open interest of 1,275 contracts.

Today those puts have traded for as much as $3.50, more than double their average price. The stock fell 12.38% in the same time, showing how options can far outperform 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.

NCLH has been drifting lower this session, last trading at $15.50, down 14.00% on the session. The cruise-line operator was downgraded to Equal Weight from Overweight this morning at Barclays.