$SKX bears running up gains

Skechers USA fell with poor quarterly results today, resulting in large profits on downside option positions.

On April 5, Investitute’s tracking systems detected the purchase of 6,497 May $35 puts as part of a bearish roll with shares at $34.73. This was clearly a new position, as open interest in the strike was a mere 3 contracts. Before that session began.

Those puts traded for as much as $5.30 today, about twice their purchase price. The stock dropped 14.37% in the same time frame, illustrating 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.

SKX was down 10.43% to $31.60 today. The shoe retailer missed earnings and sales estimates this morning.