Allergan has been hit hard after losing a high-profile court ruling, and downside option positions are drawing large gains as a result.
On Sept. 19, Investitute’s proprietary programs cited the purchase of 3,600 November $210 puts for $4.85 to $5.73 with shares at $215.23. These are clearly new positions, as open interest in the strike was only 615 contracts before the activity appeared.
Those puts traded as high as $24.50 at the end today’s session, 5 times their original purchase price. The stock fell 13.1 percent in the same time period, illustrating how options can far 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.
AGN was down 5.37 percent to $187.15 today. Shares fell sharply yesterday after the company lost patent lawsuits over its Restasis drug fo chronic dry-eye disease.