Why bears scored big in $OSTK

Option traders tripled their money on downside positions in Overstock.com today.

On March 19, Investitute’s tracking systems detected the purchase of 7,150 June $25 puts for $0.75 and $0.95 with shares at $47.15. These were clearly new positions, as open interest in the strike was only 350 contracts.

Those puts traded up to $2.43 today, more than 3 times their initial purchase price. The stock plunged 31.7% in the same time frame, a large move but far below that of their 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.

OSTK dropped 9.38% to close at $32.85 this afternoon. The discount retailer had planned a secondary stock offering today but canceled it “given the market volatility.”