$SQ put buyers ring up big gains

Traders made plenty of money on bullish option positions in Square recently, but today it was the bears’ turn to score major profits.

On Nov. 17, Investitute’s proprietary programs cited the purchase of 2,000 December $41 puts for $0.99 as part of a bearish spread with shares at $43.08. This was clearly a new position, as open interest in the strike was only 159 contracts before the activity appeared.

Those puts traded for $4.70 today, nearly 5 times their purchase price. The stock dropped 15.7 percent in the same time period, underscoring how options can far outperform moves in 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.

SQ fell 4.96 to $36.19 today. Shares of the electronic-payment service doubled in price from early September to mid-November but have cooled off since Thanksgiving.