Call prices quadruple in $XBI

Bullish option traders logged exponential gains in the SPDR S&P Biotech Fund today.

On Feb. 15, Investitute’s tracking systems showed that 2,500 Weekly $88 calls expiring on March 1 were purchased for $0.50 as part of a bullish roll with shares at $85.16. This was clearly a new position, as open interest in the strike was a mere 50 contracts before that session began. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those calls traded for as much as $2.05 today, more than 4 times their purchase price. The stock rose 5.34% in the same time frame, underscoring how quickly options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

XBI reached a session high of $89.71 late this afternoon before pulling back to close at $88.83, off 0.78% on the day. The exchange-traded fund rallied yesterday after Roche (RHHBY) bought Spark Therapeutics (ONCE) for about $4.8 billion, raising speculation that more deals will be made in the industry.