$TPX puts spike higher overnight

Bearish traders racked up huge gains today after Tempur Sealy reported weak sales.

Just yesterday, Investitute’s proprietary programs cited the purchase of 3,400 November $57.50 puts for $1 to $1.10 with shares at $65.43. This was clearly fresh buying, as open interest in the strike was only 234 contracts before the trades occurred.

Those puts sold for $3.90 today, nearly 4 times their original purchase price. The stock fell 17.4 percent at the same time, illustrating how quickly 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.

TPX dropped 17.25 percent today to close at $55.02. The mattress manufacturer missed revenue expectations before the market opened this morning.