Bearish option trades turned huge profits as Twitter fell sharply today.
On July 21, Investitute’s scanners showed that 18,000 Weekly $18 puts expiring tomorrow were purchased for $0.27 as part of a bearish vertical spread with shares at $20.16. This was clearly a new positions, as open interest in the strike was just 1,166 contracts before the trade occurred.
Today those puts traded for $1.76, a gain of more than 550 percent in less than a week. The stock was down 14.3 percent in the same time frame, illustrating how quickly options can 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.
TWTR dropped 14.13 percent to $16.84 today. The social-media company reported disappointing user growth in its quarterly results before the opening bell.