Alder BioPharmaceuticals has fallen sharply after releasing mixed clinical data early this week, yielding huge profits for downside option positions.
On Monday, Investitute’s systems found that 2,700 July $15 puts were purchased for $1.30 to $1.75 with shares at $18.80. This was clearly fresh buying, as volume was well above the strike’s open interest of 1,178 contracts.
Those puts sold for $3.70 today, more than doubling in value. The stock plunged 39.2 percent in the same time frame, a huge drop but still far less than that of the options on a relative basis.
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.
ALDR fell 4.58 percent to $11.45 today. The stock gapped down from $18.70 on Tuesday morning–the day after the July puts were bought–following mixed results for the drug company’s proposed migraine treatment Eptinezumab.