$BABA bears score large profits

Option traders are scoring large profits in downside positions in Alibaba (BABA) today.

On Jan. 17, Market Rebellion’s Unusual Activity Service flagged the purchase of 10,300 February $220 puts as part of a bearish roll for $4.73 with shares at $226.35. This was clearly fresh buying, as open interest in the strike was only 3,213 contracts before that session began.

Those puts have traded for as much as $12.80 so far today, more than 2.5 times their original purchase price. The stock fell 6.51% in the same time period, underscoring how 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 is lower to $212.94 for a 2.81% decline this afternoon. The Chinese e-commerce giant fell alongside other Chinese equities as the Lunar New Year’s start is impacted by the Coronavirus.