$KAR put prices spike 5-fold

Option traders have made a killing on bearish positions opened in KAR Auction Services (KAR) only one week ago.

On Oct. 30, Market Rebellion’s proprietary programs flagged the purchase of 10,000 November $25 puts for $0.65 to $0.70 with shares at $25.95. This was clearly a new position, as open interest in the strike was only 210 contracts before the trade occurred.

Those puts sold for as much as $3.42 today, 5 times their average purchase price. The stock dropped 17.11% in the same time frame, 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.

KAR is down 16.63% to $21.25 this afternoon. The auto auction and salvage company missed quarterly estimates after the market closed yesterday.