Bears score as VIPshop stumbles

Vips530

Chinese e-tailer Vipshop has been sliding since reporting quarterly results earlier this month, resulting in significant returns for bearish option trades.

On May 18, Investitute’s scanners showed that 2,000 June $14 puts were purchased for $0.60 to $0.68 as part of a bearish roll. Open interest in the strike was only 153 contracts before the trade occurred, showing that this was a new position

Those puts traded for $1.25 today, doubling in value less than two weeks later. The stock fell less than 8.2 percent in the same period, underscoring how options can outperform their underlying shares by a large margin.

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.

VIPS was down 3.03 percent to close at $12.49 today. The online discount retailer pulled back after announcing earnings on May 15 and has continued to decline since.

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Mike Yamamoto | Investitute

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