Put prices double in $URBN

Option traders have logged large gains on bearish positions opened in Urban Outfitters (URBN) just before quarterly results came out this week.

On Nov. 18, Market Rebellion’s Unusual Activity Service flagged the purchase of 6,000 January $30 puts for $2.10 as part of a bearish roll with shares at $30.46. This was clearly a new position, as open interest in the strike was a mere 164 contracts before the trade occurred.

Those puts are marked at $4.50 this afternoon, more than twice their purchase price.  The stock has fallen 16.74% in the same time frame, showing how options can far outperform moves in their underlying shares 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.

URBN is up 1.95% to $25.59 in late trading today as the stock rebounds off post-earnings lows. The fashion retailer missed third-quarter estimates on the top and bottom lines after the market closed on Nov. 18.