Bears profit as $SIG falls sharply

Signet Jewelers plunged after reporting earnings this morning, returning large gains on downside option positions.

On Nov. 9, Investitute’s proprietary programs cited the purchase of 15,522 January $70 puts for $7 as part of a bearish roll with shares at $70.37. This was clearly a new position, volume was well above the strike’s open interest of 4,227 contracts.

Those puts traded for $17.49 today, 2.5 times their purchase price. The stock dropped 24.8 percent in the same time frame, a large move but nowhere near that of its 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.

SIG plummeted 30.39 percent to $52.79 today. The jewelry chain fell sharply on disappointing guidance before the market opened.