$RRGB puts stack up big profits

Bearish option traders quadrupled their money in Red Robin Gourmet Burgers today.

On June 21, Investitute’s tracking systems cited the purchase of 2,000 August $55 puts for $4.60 to $5.30 with shares at $52.85. Open interest in the strike was a mere 3 contracts, showing that this was fresh buying.

Those puts traded up to $18.36 this afternoon, 4 times their initial purchase price. The stock plunged 30.12% in the same time period, underscoring how options can far outperform moves in 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.

RRGB dropped 19.25% to $37.03 today. The restaurant chain fell sharply after announcing poor preliminary quarterly results this morning.