General Electric dropped after quarterly results this morning, resulting in significant profits on bearish option positions.
On Tuesday, Investitute’s market scanners found that 2,500 Weekly $27 puts expiring on Aug. 4 were purchased for $0.52 to $0.55 as part of a bearish roll with shares at $26.86. Open interest in the strike was only 210 contracts before the activity appeared, showing that it was new positioning.
Those puts traded for $1.53 this morning, nearly tripling in value less than four full sessions later. The stock was down less than 5.2 percent in the same time, illustrating how quickly options can 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.
GE fell 2.92 percent to $25.91 today. The industrial giant beat quarterly estimates before the market opened, but revenue was down 12 percent from the same period last year.