$ULTA put prices double overnight

Ulta Beauty dropped today on disappointing guidance, returning large gains on bearish option positions opened one session earlier.

Just yesterday, Investitute’s proprietary systems found that 3,000 Weekly $217.50 puts expiring this afternoon were purchased for $6.50 as part of a bearish spread with shares at $223.15. This was clearly a new position, as open interest in the strike was only 448 contracts before the trade occurred.

Today those puts sold for $14.12, more than doubling in price. The stock fell 9.1 percent at the same time, illustrating how quickly 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.

ULTA as down 4.12 percent to $212.58 today The salon and cosmetics chain beat quarterly estimates last night but fell short on its earnings outlook for the fourth quarter.