Rite Aid puts yield huge gains

A large bearish position in Rite Aid was opened three months ago, and it’s been well worth the wait.

Back on March 3, Investitute’s proprietary programs identified the purchase of 10,000 July $5 puts for $0.65 as part of a vertical spread. Shares were $5.24 at the time.

Those puts ended trading today at $2.20, more than tripling in value. The stock was down 43 percent in that time, a huge move but still far less than 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.

RAD plunged 15.01 percent to close at $3 today. The pharmacy chain dropped sharply this morning on reports that the Federal Trade Commission plans to oppose the company’s proposed merger with rival Walgreens Boots Alliance.