$PDD bears make fast money

Option traders scored big profits this morning on downside positions opened a few trading hours before in Chinese e-commerce company Pinduoduo (PDD).

On Friday, Jan. 24, Our Uusual Activity tracking systems detected the purchase of 3,800 Weekly $36 puts expiring on Jan. 31 for $0.38 to $0.45 above open interest of 26 contracts, with shares at $37.39.

Those puts traded for as much as $1.30 after the opening bell today, more than 3 times their average purchase price. The stock fell 4.55% at the same time, underscoring how quickly options can far outpace gains in their 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.

PDD opened lower at $35.30 this morning but has since pulled back higher, last at $36.84 for a 1.34% loss on the session. The Shanghai-based company fell sharply with other Chinese equities as concerns related to the Coronavirus grew over the weekend.