Bearish trades light up as $MO falls

Downside option positions opened in tobacco company Altria this morning saw exponential gains by the end of the day.

About half an hour into today’s session, Investitute’s proprietary programs noted that 1,800 Weekly $63 puts that expired this afternoon were purchased for $0.07 to $0.35 with shares at $62.87. Volume was well above the strike’s open interest of 245 contracts, indicating that this was fresh buying.

Those puts traded up to $0.58 at the end of the day, more than 8 times their original purchase price. The stock was down only 0.65 percent at the same time, showing how quickly options can 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.

MO fell 1.97 percent to close at $62.55. In the morning Wells Fargo cited a new 1,250-patient study that discussed the potential effectiveness of an immediate reduction in nicotine levels by the Food and Drug Administration.