$UNP bears rack up large gains

Option traders tripled their money in United Pacific (UNP) today as shares continued to decline after its earnings report.

On Oct. 13, Market Rebellion’s Unusual Activity tracking systems detected the purchase of 2,500 Weekly $202.50 puts for $5.08 to $5.25 as part of a bearish spread with shares at $203.42. Volume was clearly above the strike’s previous open interest of 9 contracts, indicating that this was fresh buying.

Those puts sold for $18.70 today, triple their purchase prices. The stock fell 9.64% in the same time period, underscoring how options can far outperform 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.

UNP was last trading for $184.12 in afternoon trade, down 2.14%. The railroad operator missed estimates on its top and bottom lines during its earnings report last Thursday.