Bears double their money in Fred’s

Downside option positions have turned significant profits in Fred’s as its stock price has been halved in the last month.

On June 22, Investitutes proprietary programs identified the purchase of 5,000 July $10 puts for $1.20 as part of a bearish roll with shares at 10.05. Open interest was only 1,861 contracts at the beginning of that session, showing that this was a new position.

Those puts traded for $2.30 today, doubling in value. The stock dropped 22.8 percent in the same period, a large move but one that still pales in comparison to that of the puts.

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.

FRED plunged 15.93 percent today to close at $7.76. The discount retailer, which fell after quarterly results early last month, dropped again last Thursday when Walgreens Boots Alliance withdrew its bid to buy Rite Aid and canceled a related sale of 865 stores to Fred’s.