Bearish option traders have made exponential returns on their money in downside positions in Starwood Property Trust, Inc. (STWD).
On Aug. 19, Market Rebellion’s Unusual Activity Service flagged the purchase of 20,000 October $22 puts for $0.45 with shares at $23.77. This was clearly a new position, as open interest in the strike was 0 contracts before that session began.
Those puts traded for $3.60 today, 8 times their purchase price. The stock declined 22.34% in the same time frame, underscoring 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.
STWD was last down 9.06% at $18.48 today.