Bears quintuple their money in $XOP

Downside option positions yielded exponential returns today as the SPDR S&P Oil & Gas Exploration & Production Fund (XOP) continued to plummet.

On May. 2, Investitute’s market scanners showed that 12,800 Weekly $26.50 puts expiring this Friday, on June 14, were purchased for $0.31 as part of a bearish spread with shares at $29.18. This was clearly a new position, as there was no open interest in the strike before that session began.

Those puts traded for $1.67 today, more than 5 times their purchase price. The stock fell 14.91% in the same period, underscoring how 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 dropped 3.46% to $24.86 today, its worst closing level since breaking out of a previous downtrend on December 26. The exchange-traded fund has plummeted with the price of crude in recent months.