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.