Why $ALB puts rocketed 32-fold

Albemarle fell sharply on pricing concerns this week, yielded astronomical profits today on bearish option positions opened just 48 hours earlier.

On Tuesday, Investitute’s proprietary programs cited the purchase of 3,500 January $120 puts for $0.20 to $0.35 with shares at $128.42. These were clearly new positions, as volume was well above the strike’s open interest of 1,235 contracts.

Those puts sold for $7.30 this morning, more than 36 times their original purchase price. The stock fell 12.2 percent in the same time frame, underscoring how quickly options can far outpace moves in 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.

ALB ended today’s session down 7.12 percent at $117.91. The specialty-chemical maker dropped after reports that miner SQM may resolve a dispute with the Chilean government that over the production of lithium, which could slash prices. Albemarle, which is scheduled to report earnings on Feb. 28 before the market opens, is the top producer of lithium.