Put buyers score profits of 635% in $FL

Weak quarterly results at Foot Locker translated to strong gains for bearish option traders.

On Aug. 3, Investitute’s tracking systems detected the purchase of 6,000 August $48 puts for $1.75 to $1.95 with shares at $48.80. These were clearly new positions, as volume was well above the strike’s open interest of 1,975 contracts.

Those puts sold for $13.60 today, for an average profit of more than 635 percent. The stock dropped 29.6 percent in the same time frame, a large move but nowhere near that of the 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.

FL plummeted 27.92 percent to $34.38 today. The shoe retailer reported earnings and sales that fell short of estimates this morning. Nike, The Finish Line, and other leading industry names sold off in kind.