$JCP losses translate to big gains for bears

Downside option traders tripled their money in J.C. Penney today.

On Monday, Investitute’s tracking systems detected the purchase of 18,517 August $5.50 puts for $0.48 as part of a bearish spread with shares at $4.39. Volume was far above the strike’s open interest of 1,954 contracts, showing that this was a new position.

Those puts sold for $1.71 today, a gain of more than 250 percent in five sessions. The stock fell 13.7 percent at the same time, underscoring how quickly 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.

JCP plunged 16.65 percent today to close at $3.93, hours after hitting an all-time low of $3.77. The beleaguered department-store operator reported a quarterly loss that was wider than expected this morning.