Chico’s plunge sends puts soaring

A bearish position in Chico’s FAS opened early this year is paying off today.

Way back on Feb. 17, Investitute’s scanners detected the purchase of 2,400 August $13 puts in one print for $1.20 with shares at $14.05. This was clearly a new position, as open interest in the strike was just 40 contracts before it appeared.

Those puts sold for $4.20 this afternoon, representing a profit of 250 percent. The stock dropped nearly 38 percent in the same time frame, a huge move but one that was 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.

CHS fell 4.27 percent to $8.75 today, its lowest level since 2009. The women’s clothing retailer, which traded well above $14 as recently as six weeks ago, gapped lower after poor quarterly results and outlook on May 24 and ended up down 32 percent for the month.