Put buyers score in $AA

Option traders who opened downside positions in Alcoa (AA) just last week are piling up big profits today.

On May. 3, Market Rebellion’s Unusual Activity tracking systems detected the purchase of 6,800 May $64 puts for $2.83 to $3.20 with shares at $67.21. Volume was well above the strike’s previous open interest of 175 contracts, showing that this was fresh interest.

Those puts have traded up to $10.30 today. The stock declined 19.33% in the same time period, a large move but nowhere near that of its options on a relative basis.

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.

AA was last down by 3.58% at $56.15 during afternoon trade.