Downside option positions are turning exponential profits as Nordic American Tankers trades at record lows.
Back on May 12, Investitute’s proprietary programs found that 2,200 October $5 puts were purchased for $0.15 and $0.20 with shares at $7.27. These were clearly new positions, as open interest in the strike was just 570 contracts before the activity appeared.
Those puts traded as high as $0.79 this afternoon, an average gain of more than 350 percent. The stock fell 37 percent in the same time period, a large move but still far less than that of its 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.
NAT dropped 7.21 percent to $4.63 today. The Bermuda-based company, which as been falling along with the rest of the tanker industry, hit an all-time low of $4.55 earlier in the session.