Bears check out with $XRT

Bearish option traders have quadrupled their money on downside positions in the SPDR S&P Retail Fund (XRT) today.

On Oct. 15, Market Rebellion’s Unusual Option Activity Service flagged the purchase of 7,500 Weekly $54 puts expiring today, Oct. 30, for $0.98 to $1.10 with shares at $54.60. Volume was above the strike’s existing open interest of 87 contracts, indicating that this was fresh buying.

Those puts have traded up to $3.70 this morning and were last marked for $4.45, about 4 times their purchase prices. The stock fell 8.52% at the same time, showing 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.

XRT was last lower by 2.48% at $49.95 this morning. The exchange-traded fund has pulled back as volatility has returned to equities during this season of earnings reports.