Bears score as Emerge Energy falls

Emerge Energy Services dropped with the price of oil today, resulting in exponential gains for downside positions.

On May 15, Investitute’s tracking systems showed that 10,000 Weekly $13.50 puts expiring on June 9 were purchased for $0.80 with shares trading at $14.19. These were new positions, as there was no open interest in the strike before the trades occurred.

Today those puts were listed at $2.33, more than tripling in value barely a week later. The stock was down 20 percent in the same time, underscoring how options can far outperform 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.

EMES fell 6.5 percent today to close at $11.36. The fracking-sand producer declined along with the rest of the energy sector as crude gave up its early gains.