$EBAY bears post huge profits

It took less than a week for option traders to score big gains on downside positions in eBay.

On April 8, Investitute’s tracking systems showed that 3,000 Weekly $37.50 puts expiring tomorrow were purchased for $0.21 with shares at $37.86. This was clearly fresh buying, as volume was far above the strike’s previous open interest of 1,056 contracts.

Those puts traded up to $1.65 today, more than 7 times their purchase price. The stock dropped 5.18% in the same time frame, illustrating 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.

EBAY hit a session low of $35.89 this afternoon before pulling up to close at $36.32, still down 3.71% on the day. The online auction giant fell after Amazon (AMZN) compared growth in sales of third-party sellers between the two platforms in its annual letter to shareholders.