Downside trades score big in $COST

Costco’s losses translated to big gains for bearish option positions today.

On Wednesday, Investitute’s proprietary programs cited the purchase of 2,100 October $158 puts for $0.92 to $1.02 with shares at $165.21. Volume was above the strike’s open interest of 1,969 contracts, indicating that this was fresh buying.

Today those puts traded for $3.12, more than triple their original purchase prices. The stock fell 5.2 percent, illustration how options can far outperform moves in 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.

COST slumped 5.97 percent to $157.09 today. The warehouse retailer beat earnings and revenue expectations but sold off on fears of competition from Amazon.com.