Bears double money in $XOP

It took less than a week for option traders to reap substantial gains with downside positions in the SPDR S&P 500 Oil and Gas Exploration & Production Fund

On Nov. 8, Investitute’s tracking systems identified the purchase of 50,000 February $31 puts in one print for $0.53 with shares at $37.07. This was clearly a new position, as open interest in the strike was a mere 14 contracts before the trade occurred. A few days earlier Investitute co-founder Pete Najarian cited heavy buying in November puts on CNBC’s “Halftime Report.”

Those puts rose to $1.32 today, 2.5 times their purchase price. The stock fell 7.39% 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.

XOP was down 0.49% to $34.28 today. The exchange-traded fund has dropped with the price of oil in the last several weeks.