Puts soar 1,000% as Costco drops

Costco has been falling steadily for the last week, and bearish option traders are seeing gains pile up every day.

On June 8, Investitute’s scanners found that 1,250 Weekly $180 puts expiring on July 7 were purchased for $1.98 as part of a bearish three-way spread with shares at $181.43. This was clearly a new position, as open interest in the strike was only 64 contracts before the trade occurred.

Today those puts were marked at $22.73, representing a profit of more than 1,000 percent. The stock dropped 13.4 percent in the same time frame, underscoring how far 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.

COST was down another 1.66 percent today to close at $157.13. The discount chain gapped down from $180 on June 16 over competitive concerns after Amazon.com announced its intention to buy Whole Foods Market.