Traders profit from $GE losses

Bearish option traders have doubled their money in General Electric with shares at multi-year lows.

On May 23, Investitute’s proprietary programs flagged the purchase of 42,500 July $14 puts for $0.54 as part of a bearish roll with shares at $14.36. Volume well above the strike’s open interest of 28,605 contracts, showing that this was a new position. Investitute co-founder Pete Najarian cited the unusual activity on CNBC’s “Fast Money” program Tuesday night.

Those puts traded for $1.38 today, more than 2.5 times their purchase price. The stock dropped 11.56% 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.

GE was down 0.97% to $12.76 today. The industrial giant fell to a nine-year low of $12.61 this morning after being removed from the Dow Jones Industrial Average for the first time in 111 years yesterday.