Bears profit from $XBI losses

Downside option traders have doubled their money in the SPDR S&P Biotech Fund.

On Sept. 12, Investitute’s tracking systems showed that 9,000 October $95 puts were bought in one print for $2.57 as part of a bearish spread with shares at $95.75. This was clearly a new position, as volume was above the strike’s open interest of 8,866 contracts before that session began.

Those puts traded for $5.85 today, more than twice their purchase price. The stock dropped 6.7% in the same time period, underscoring how options can far outperform moves 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.

XBI was down 1.51% to $90.45 today. The exchange-traded fund’s smaller-cap holdings have lagged behind shares of larger drug makers recently.