Bears triple their money in Snap

Snap fell to new lows today, returning huge profits on downside option positions.

On May 9, Investitute’s tracking systems detected the purchase of 5,600 August $21 puts for $1.90 to $2 with shares at $22.70. These were clearly new positions, as open interest in the strike was just 17 contracts before the activity appeared.

Those puts traded for $6.64 at the end of today’s session, a gain of nearly 250 percent. The stock plunged 31.6 percent in the same period, a huge move but still far less than that of the options.

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.

SNAP dropped 9.05 percent to close at $15.47 today, its lowest level since going public in March. This morning Morgan Stanley, one of the underwriters of the stock’s initial public offering, downgraded the social-media company to “equal weight” from “overweight” and slashed its target price to $16 from $28 because of competition from Facebook’s Instagram.