Bears hit a gusher in $XOP

Bearish option traders have hit quite the gusher, nearly quintupling their money on downside positions in the SPDR S&P Oil & Gas Exploration & Production Fund (XOP).

On Jan. 21, our Unusual Activity Service detected the purchase of 5,000 February $21 puts for $0.43 as part of a bearish roll with shares at $21.73. This was clearly fresh buying, as open interest in the strike was only 4,778 contracts before that session began

Those puts have traded for as much as $2.05 today, nearly 5 times their purchase price. The stock fell 12.38% in the same time period, underscoring how options can far outperform 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 is currently down 2.34% at $19.17. The exchange-traded fund has come down sharply from recent highs as the price of WTI crude has fallen back to below $52.50 per barrel.