Bears score big profits in $VIPS

Vipshop (VIPS) dropped lower today, handing exponential profits to bearish option traders.

On Apr, 30, Market Rebellion’s Unusual Activity Service found that 5,000 May $27 puts, expiring this Friday, were bought for $0.70 with shares at $30.75. This was clearly fresh buying, as open interest in the strike was just 4,131 contracts before the activity appeared.

Those puts have traded up to $5.00 today, more than 7 times their purchase price. The stock dropped 28.1% in the same time frame, showing how quickly options can far outperform moves in the 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.

VIPS was last down 10.89% on the day at $22.01. The Chinese discount retailer missed earnings estimates in its quarterly report delivered this morning.