Lowe’s bears go on shopping spree

Downside option positions have generated huge returns as Lowe’s has stumbled.

On June 22, Investitute’s proprietary programs identified the purchase of 10,000 July $78 puts for $1.26 to $1.32 as part of a bearish spread with shares at $78.72. Open interest in the strike was a mere 68 contracts before the trade occurred, showing that it was a new position.

Today those puts traded as highs as $6.20, representing an average profit of 380 percent. The stock declined less than 9 percent in the same period, illustrating the kind of leverage that can be obtained through 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.

LOW fell 5.56 percent to $72.56 today. The home-improvement retailer has been struggling since reporting poor quarterly results in May and dropped again today with rival Home Depot after Sears announced plans to sell appliances on Amazon.com, representing another potential threat from the e-commerce giant.