Bears win big in Chicago Bridge

The misfortunes of Chicago Bridge & Iron are yielding exponential returns on downside positions.

On May 11, Investitute’s proprietary programs identified the purchase of 23,000 June $25 puts for $1.25 to $1.55 with shares at $24.21. Volume was well above the strike’s open interest of 4,232 contracts, showing that this is new positioning.

Today those puts sold for $8.95, a gain of about 500 percent. The stock has plunged 33.4 percent in that same period, a large move but one that pales in comparison to that of the options. It was the second winning put trade reported in CBI reported by Investitute in the last month.

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.

CBI dropped 11.17 percent to $15.35 today after bottoming at $15.03 earlier in the session, its lowest levels since 2009. The construction and engineering company The engineering and construction company missed earnings estimates on May 8 and was downgraded yesterday by Macquarie, which slashed its price target to $11.50 from $18.