Downside Pay Pal options Soared on Wednesday

PayPal Inc. (PYPL) bears feasted this week as a sharp tech sector selloff drove put option prices through the roof.

On October 1, Investitute's tracking systems showed that 6,500 Weekly $86 puts expiring on October 12 were bought from $0.61 to $0.67 with shares traded at $87.98 to $88.09 at the same time. The volume was well above the open interest of 189 contracts, indicating this was a new position.

These put buyers may have seen a reason to hedge their portfolio which may have contained PayPal shares, or perhaps they just wanted to express an opinion that the high-beta stock had perceived downside.

Those puts traded for $9.12 on Wednesday, October 10, more than 14 times their average purchase price. The stock dropped 12.66% in the same time frame, showing how options can quickly outperform moves in their underlying shares.

Long puts lock in the investor's selling price, no matter how far it might drop, gaining value in a selloff and the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

PayPal fell 5.72% to close at $75.45 Wednesday. The electronic-payment service, which was trading at all-time highs only a few weeks ago, has fallen sharply since breaking below its 50-day moving average at the end of September.

More from Options

Market Movers: Tech Earnings

Market Movers: Tech Earnings

Tesaro Bulls Double Their Money

Tesaro Bulls Double Their Money

Novice Trade: Apple

Novice Trade: Apple

A Value Play in MSC Industrial

A Value Play in MSC Industrial

How Clovis Calls Prices Increased Overnight

How Clovis Calls Prices Increased Overnight