U.S. Steel pulled back in the last week, resulting in outsized gains for downside option positions.
Last Friday, Investitue’s tracking systems showed that 2,700 Weekly $25.50 puts that expired this afternoon were purchased for $0.53 to $0.78 with shares at $25.16. Volume was more than double the strike’s open interest, indicating that this was new positioning.
Today those puts traded for $2.36, more than 4 times their original price. The stock fell 7.8 percent in the same time frame, illustrating the how quickly 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.
X fell 3.37 percent to $23.83 today. This morning Cowen downgraded the steel maker to “underperform” from “market perform” and slashed its price target on the name to $20 from $24.