$PM bears score big overnight

Weak guidance pressured Philip Morris today, resulting in quick gains for downside option positions opened only one session earlier.

Just yesterday, Investitute’s proprietary programs flagged the purchase of 5,890 July $82 puts for $1.73 as part of a complex spread with shares at $82.27. This was clearly a new position, as open interest in the strike was only 1,084 contracts before the activity appeared.

Those puts traded up to $5.65 this morning, more than 3 times their purchase price. The stock fell 6.71% at the same time, showing 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.

PM rebounded off its morning lows but still ended today’s session down 1.52% at $80.90. The stock dropped after the cigarette maker reported a disappointing outlook before the market opened.