Continental Resources has fallen to its lowest levels in more than a year as the price of oil has tumbled, turning huge profits for bearish option traders.
On May 12, Investitute’s tracking programs highlighted the purchase of 13,100 June $39 puts for $0.80 to $0.85 with shares at $42.06. These were clearly new positions, as open interest in the strike was only 163 contracts before the activity appeared.
Those puts traded for $3 today, a gain of more than 250 percent. The stock declined 14 percent in the same time frame, showing how options can far 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.
CLR was down 4.7 percent today to close at $36.07 after hitting a 52-week low of $35.97 earlier in the session. The oil and natural-gas producer has dropped to levels not seen since May 2016.