$XPO puts soar 9-fold in a day

Bearish option traders have made a killing in XPO Logistics as its share price has been cut in half over the last six weeks.

Just this morning, Investitute’s proprietary programs flagged the purchase of 3,400 January $50 puts for $1.15 to $1.35 with shares at $58.25. This was clearly fresh buying, as open interest in the strike was only 385 contracts before that session began.

Those puts surged to $11.15 this afternoon, 9 times their average purchase price. The stock dropped 28.19% at the same time, showing how quickly options can far outperform their underlying shares on a relative basis.

In addition, on Nov. 1, 2,500 December $80 puts were bought for $4.50 above open interest of 179 contracts with shares at $82.50. Those puts traded for $38.05 today, more than 8 times their purchase price, while the stock plummeted 49.37% in the same time period.

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.

XPO ended today’s session down 26.17% at $44.50 after hitting a 52-week low of $41.05 an hour before the close. The transportation-logistics company said in regulatory filing yesterday that earnings growth might fall below estimates. That was followed by a critical report from short-selling firm Spruce Point Capital Management.