Bears go on shopping spree at Ross

Ross Stores has continued to fall along with other retailers, resulting in big gains for downside option positions.

On June 8, Investitute’s market scanners found that 2,500 August $60 puts were purchased for $1.70 to $1.75 with shares at $61.46. Open interest in the strike was only 298 contracts before the trade occurred, showing that this was fresh buying.

This afternoon those puts were marked at $4.30, representing a profit of 150 percent. The stock dropped 11.1 percent in the same period, showing 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.

ROST was down 0.25 percent to $56.14 today. The discount chain, which was trading near $70 in February, has declined sharply along with the rest of the retail sector.