Puts rack up large gains in $DG

Bearish option traders doubled their money in Dollar General today.

On Nov. 14, Investitute’s market scanners identified the purchase of 2,100 December $120 puts bought for $7.48 to $8.20 with shares at $114.74. These were clearly new positions, as open interest in the strike was only 138 contracts before the activity appeared. In-the-money put buying such as this often represents straight bearish bets, not hedging on long holdings.

Those puts traded for as much as $16.30 today, twice their average purchase price. The stock fell 9.64% 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.

DG dropped 6.8% to $104.10 today. Shares declined after the discount retailer lowered its outlook before the market opened this morning.