Put buyers post large gains in $FNSR

Finisar gapped lower on poor quarterly results this morning, resulting in big returns for bearish option positions.

On Aug. 8, Investitute’s proprietary programs cited the purchase of 3,200 September $25 puts for $2.80 and $2.85 with shares at $23.49. This was clearly fresh buying, as volume was well above the strike’s open interest of 1,169 contracts.

Today those puts traded for $4.75 today, nearly doubling in value. The stock fell 12.8 percent in the same time period, showing how options can far outperform their underlying shares. It was the second winning put trade in Finisar posted on Investitute in a little more than a month.

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.

FNSR dropped 4.73 percent to $20.95 today. The fiber-optics company fell sharply after issuing guidance that was far short of expectations yesterday evening.