$BABA bears double money overnight

It took only one session for bearish option traders to rack up huge gains in Alibaba (BABA).

Just yesterday on Jul. 26, Market Rebellion’s Unusual Option Activity programs detected the the purchase of 4,500 Weekly $187.50 puts, expiring this Friday, for $3.52 as part of a bearish spread with shares at $191.80. Volume was clearly above the previous open interest of 636 contracts, indicating that this was a new position.

Those puts sold for as much as $9.90 today, over 2.5 times their purchase price. The stock fell 6.23% in the same time frame, showing how quickly options can far outperform moves in their underlying shares on a relative basis.

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.

BABA was down 2.97% to close at $186.07this afternoon. The Chinese e-commerce giant, which was downgraded to a Sell from Buy at DZ Bank today, is expected to next report earnings on Aug. 3 before the market opens.