Bearish trades turn 500% profit in Mylan

Poor quarterly numbers from Mylan today resulted in big gains for downside option positions.

On July 18, Investitute’s proprietary programs showed that 2,000 Weekly $38 puts expiring this Friday were purchased for $1.09 to $1.22 with sharest at $38.06. This was clearly fresh buying, as open interest in the strike was a mere 22 contracts before the trades occurred.

Those puts sold this morning for $7.10, an average gain of more than 500 percent. The stock fell 18.7 percent in the same time frame, illustrating 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.

MYL closed today up 0.91 percent to $32.08 but had fallen sharply in the sessions leading up to this morning’s earnings report. The drug maker lowered its outlook after missing estimates on the top and bottom lines before the market opened.