Bears make a barrel of gains in $XLE

The SPDR Energy Fund (XLE) traded lower today along with crude, delivering large profits to bearish option traders.

Back at the start of the year on Jan. 8, our Unusual Activity Service identified the purchase of 6,126 May $59 puts as part of a bearish roll for $2.50 with shares at $59.81. Volume was well above the strike’s open interest of 24 contracts, showing that this was a new position.

Those puts ended the session marked for $26.00 today, more than 10 times their purchase price. The stock fell 45.01% in the same time frame, showing how quickly 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.