$PLAY bears score gigantic win

Dave & Buster’s Entertainment dropped sharply this week, handing huge gains to downside option traders.

On Jan. 2, Investitute’s proprietary programs cited the purchase of 2,000 January $55 puts for $1.55 to $1.85 with shares at $54.59. This was clearly fresh buying, as open interest in the strike was only 823 contracts before the trades occurred.

Those puts were listed for $10.81 at the end of today’s session, 7 times their original purchase price. The stock dropped 15.4 percent in the same time frame, illustrating the kind of leverage that can be achieved 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.

PLAY was up 0.22 percent today to close at $46.20. The restaurant and entertainment chain gapped down from above $56 on Monday after reporting weak sales and lowering its full-year outlook.