Downside option positions in Chicago Bridge & Iron turned huge profits today, following dismal quarterly results.
On Aug. 1, Investitute’s proprietary programs cited the purchase of 15,100 August $17.50 puts for $0.90 to $1.05 with shares at $18.16. This represented new positioning, as volume was well above the strike’s open interest of 4,981 contracts.
Those puts traded up to $6.90 today, an average gain of more than 600 percent. The stock fell 17.5 percent in the same time frame, showing 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.
CBI plunged 26.7 percent to $11.97 today. The construction and engineering company announced a surprise loss and fell far short of revenue estimates after the market closed yesterday. Management suspended the firm’s dividend and initiated a cost-reduction plan.