Downside option traders nearly quadrupled their money in Target today.
On Tuesday, the eve of the company’s earnings report, Investitute’s proprietary programs cited the purchase of 3,100 November $56.50 puts for $0.60 to $0.80 with shares at $59.60. These were clearly new positions, as open interest in the strike was only 156 contracts before that session began.
Those puts traded for as much as $2.30 today, just shy of 4 times their original purchase price. The stock was down 9 percent in the same time frame, underscoring 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.
TGT fell to $54.13 this morning before recovering to close higher by 1.74 percent to $55.10. The discount retailer dropped sharply on poor guidance yesterday, as noted by Investitute co-founder Jon Najarian on CNBC’s “Halftime Report.”