Why $FCX puts spiked 24-fold

Freeport-McMoRan has dropped sharply on poor quarterly results, resulting in stratospheric gains for downside option positions.

On Monday, Investitute’s tracking systems showed that 2,100 Weekly $16 puts expiring this Friday were purchased for $0.03 with shares at $19.17. These were clearly new positions, as open interest in the strike was only 313 contracts before the activity appeared.

Those puts traded for $0.72 today, 24 times their purchase price. The stock plunged 20% in the same time frame, illustrating 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.

FCX was down 4.42% to $15.37 today. The mining and energy company missed earnings expectations yesterday morning.