Bears profit from Ocwen troubles

Downside option positions have seen astronomical gains as Ocwen Financial has plummeted.

On April 13, Investitute’s systems identified the purchase of 3,000 May $4.50 puts for $0.15 as part of a bearish roll, with shares at $5.41. Open interest in the strike was only 305 contracts before the trade appeared, showing that it was a new position.

Today those puts were listed at $2, a gain of more than 1,200 percent. The stock has plunged nearly 54 percent in the same time frame, but even that large move is dwarfed by the relative performance of the options.

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.

OCN sank 7.41 percent today to close at $2.50. The mortgage-service firm has been accused by government regulators of mishandling accounts in various states.