• By
  • Kaitlyn Kiernan

Twitter Inc.’s huge drop Thursday is bad news for many shareholders, but for some options traders, it may have meant a tidy 200% profit overnight.

Going into Twitter’s earnings reports, many options traders were bracing for some big moves, placing bets that the stock would rise or fall 15% on the news.

Turns out, the move was even bigger than they expected.

The social-media company reported a surprise profit late Wednesday of two cents a share, but disappointed investors as it said user growth slowed during the quarter. At the same time, Twitter’s own advertising metric for gauging usage, “timeline views,” slid for the first time sequentially.

That sent the stock tumbling after hours Wednesday, a drop that continued Thursday, with the stock down 20%.

One investor Wednesday set up a strategy known as a “put spread,” which was poised to bring in a 200% profit. That trade involves a trader buys put options, which grant the right to sell shares, at one strike price and sells an equal number at a lower strike price. While selling puts at the lower price caps profits, the premium collected from the sale helps offset the cost of buying the higher strike calls.

The investor bought Wednesday 500 weekly $63 put options, which grant the right to buy 50,000 shares at that price through Friday, while selling $55 puts, paying $2.69 a share, or a total of $134,500 to set up the trade.

On Thursday, with Twitter shares below $55,that trade was set to bring in its maximum gain of $5.31 a share, or a total of $265,500, should the options be exercised.

Meanwhile, another trader Wednesday paid $1.55 a share for weekly $55 put options, which grant the right to sell 100,000 shares for $55 each. Thursday, that investor could sell those contracts to close the trade for $3.14 a share, or about a 100% gain.

To be sure, options trading Wednesday tilted bullish, leaving many investors with big losses. And for investors using bearish options to hedge a stock position, gains from puts might only offset part of a bigger loss in the stock.