Rite Aid puts soar as deal collapses

Bearish option positions in Rite Aid turned massive profits today as the company’s proposed merger with Walgreens Boots Alliance fell apart.

Way back on March 7, Investitute’s proprietary programs identified the purchase of 10,000 July $5 puts for $0.65 as part of a bullish vertical spread. Shares were traded for $5.24 at that time.

Today those puts traded for $2.25, a gain just shy of 250 percent. The stock plunged 47 percent in the same period, but even that huge drop is far less than the move in the options on a relative basis.

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.

RAD plummeted 26.46 percent to close at $2.89 today. The pharmacy chain dropped when Walgreens withdrew its buyout offer after failing to win government approval of the deal.