Bears shop for gains in $JD

Option traders that made bearish trades in JD.com (JD) on Wednesday are seeing exponential gains today as shares take back the week’s gains.

On May 20, Market Rebellion’s Unusual Activity systems detected the purchase of 4,000 Weekly $53 puts expiring today, May 22, for $0.53 to $1.24 with shares at $54.22. Volume was well above the strike’s previous open interest of just 980 contracts, indicating that this was a new position.

Those puts traded for $3.60 today, at least about 3 times their purchase prices. The stock fell 8.85% in the same time period, showing how options can far outpace gains in their underlying shares.

It is the second winning trade in the name to be posted on Market Rebellion this week as both bulls and bears scored.

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.

JD was down 5.08% to $49.90 at the close today. The Chinese e-commerce stock gapped sharply lower along with its peers as China announced plans to impose new security legislation on Hong Kong, potentially impacting the city’s autonomy and increasing tensions for the region’s businesses.