Puts turn big gains as $UNH falls

Option traders tripled their money in downside positions on UnitedHealth today.

On Nov. 8, Investitute’s market scanners flagged the purchase of 3,000 December $270 puts for $4.40 with shares at $277.24. This was clearly a new position, as open interest in the strike was only 457 contracts before the activity appeared.

Those puts sold for $13 at the end of today’s session, 3 times their purchase price. The stock fell 7.19% in the same time frame, showing how options can far outperform move 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.

UNH was down 2.62% to $258.07 today. The stock fell along with shares of other health-care companies on news that a federal court had ruled that Obamacare is unconstitutional.