$ERIC bears dial in profits

Bearish option traders are scoring a big win in downside positions on Telefonaktiebolaget LM Ericsson ADR Class B (ERIC) today.

On Oct. 17Market Rebellion’s Unusual Option Activity Service found that 22,604 October $6 puts, expiring tomorrow, were bought for $0.15 with shares at $6.38. This was clearly fresh buying, as open interest in the contract was just 2,163 before the activity appeared.

Those puts have traded up to $0.81 so far this session, over 5 times their purchase price. The stock declined 18.81% in the same time frame, underscoring how options can far 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.

ERIC was last lower by 13.96% at $5.52.

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