Coty fell for the second straight session today after posting poor quarterly results, handing exponential profits to downside option traders.
On Aug. 9, Investitute’s systems found that 2,800 Weekly $18.50 puts expiring this Friday were purchased for $0.29 and $0.30 with shares at $19.78. Open interest in the strike was only 34 contracts before the activity appeared, showing that this was fresh buying.
This afternoon those calls traded as high as $1.78, a gain of 500 percent. The stock fell 15.2 percent in the same time frame, 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.
COTY dropped 5.48 percent to $16.74 today. The cosmetics and beauty-products company missed earnings expectations yesterday morning.