$NTAP put buyers net big profits

NetApp (NTAP) preannounced earnings yesterday, delivering gains to downside option positions opened just over a week ago.

On Jul. 24, Investitute’s tracking systems detected the purchase of 14,500 Weekly $56 puts, expiring on 02August, for $0.36 to $0.48 with shares at $58.73. This was clearly a new position, as open interest in the strike was a mere 1 contract before that session began.

Those puts traded as high as $10.47 today, nearly 25 times their average purchase prices. The stock plummeted 21.91% at the same time, illustrating the kind of leverage that can be achieved with options.

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.

NTAP reached a 52-week low of $44.79 at mid-session and shares remained depressed to close at $46.04, off 20.22% on the session. After the closing bell last night the data-management company preannounced quarterly earnings, missing on its top and bottom lines and lowering guidance for the rest of its fiscal year.