$PSTG put buyers rack up gains

Bearish option traders have turned large profits overnight as Pure Storage (PSTG) slumped after earnings.

Just yesterday, on Nov. 20, Market Rebellion’s Unusual Option Activity Service identified the purchase of 2,100 December $17.50 puts for $0.35 to $0.45 with shares at $19.73. This represented fresh buying, as volume was well above the strike’s previous open interest of 1,606 contracts.

Those puts have traded for as much as $2.00 this morning, or 5 times their average purchase price. The stock fell 18.65% at the same time, illustrating 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.

PSTG has declined by 18.54% today to $16.17. The data-storage company topped earnings-per-share but missed revenue estimates and guided the fiscal year lower after the market closed yesterday.