$SN put buyers turn large profits

Bearish option traders doubled their money in Sanchez Energy yesterday.

On Jan. 19, Investitute’s tracking systems detected the purchase of 14,350 February $6 puts for $0.85 as part of a bearish roll with shares at $5.37. This was clearly a new position, as volume was far above the strike’s open interest of 1,723 contracts.

Those puts traded for $1.60 yesterday, nearly doubling their purchase price. The stock fell 18.2% in the same time frame, reflecting the kind of leverage that can be achieved with options.

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.

SN dropped 10.48% to $4.44 yesterday. The oil producer sold off with the rest of the energy sector and the broader market after releasing quarterly results.