$TME put prices soar sixfold

Bearish option traders have scored big gains as China’s Tencent Music Entertainment has fallen.

On May 3, Investitute’s proprietary programs flagged the purchase of 2,250 May $16 puts for $0.25 to $0.30 with shares at $17.39. This was clearly fresh buying, as open interest in the strike was only 99 contracts before the trades occurred.

Those puts sold for as much as $1.65 today, 6 times their average purchase price. The stock dropped 17.71% 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.

TME was down 6.19% to $15.01 today. The Shenzhen-based online-streaming service beat earnings estimates after the market closed yesterday but fell after announcing an executive shakeup. Shares of the company have been under pressure along with other Chinese stocks amid escalating trade tensions.