$SWN bears triple their money

Southwestern Energy has declined steadily for the last three weeks, yielding large gains on downside option positions.

On Jan. 30, Investitute’s proprietary programs cited the purchase of 11,300 March $4 puts for $0.15 to $0.20 with shares at $4.50. These were clearly new positions, as volume was far above the strike’s open interest of 2,245 contracts.

Those puts traded for $0.51 this afternoon, nearly 3.5 times their original purchase price. The stock dropped 18.4% in the same time frame, showing how quickly 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.

SWN fell 8% to $3.63 today. Several analysts have downgraded the natural-gas and oil producer recently.