Newell Brands dropped sharply on dismal quarterly results today, resulting in enormous profits for downside option positions.
Just yesterday, Investitute’s market scanners identified the purchase of 8,000 November $41 puts for $1.35 to $1.55 with shares at $40.86. These were clearly new positions, as open interest in the strike was only 1,250 contracts before the activity appeared.
Those puts traded for $11.15 today, more than 8 times their original purchase price. The stock plummeted 25 percent at the same time, underscoring how quickly 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.
NWL was down 26.8 percent today to close at $30.01. The consumer-products maker lowered its outlook after falling short of earnings and revenue estimates this morning.