Bearish plays pay off as $MAT plunges

Traders posted huge profits in downside positions opened in Mattel only a week ago.

On Oct. 20, Investitute’s proprietary programs found that 5,600 Weekly $14.50 puts expiring today were purchased for $0.35 with shares at $16.07. This was clearly a new position, as open interest in the strike was only 1,684 contracts before that session began.

Those puts traded for 1.75 today, 5 times their original purchase price. The stock fell 19.8 percent in the same time frame, illustrating how options can far outperform 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.

MAT dropped another 8.91 percent today to close at $14. The toy maker cut its dividend this morning after reporting a surprise loss and weak sales.