$IBB put buyers post quick gains

The iShares Nasdaq Biotechnology Index Fund traded lower today as its components fell, handing significant profits to downside option positions.

On Thursday, Investitute’s proprietary programs flagged the purchase of 6,000 Weekly $105 puts expiring this Friday for $1.15 in one print with shares at $105.93. This was clearly fresh buying, as volume was greater than the strike’s open interest.

Those puts traded for as much as $2.29 today, nearly double their purchase price. The stock fell 2.76% in the same time frame, showing how quickly options can far outperform 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.

IBB dropped 1.45% to $103.27 today. The index tracks the biotech sector, which has fallen out of favor with the recent market’s softness. The fund’s top five holdings are Celgene, Amgen, Gilead Sciences, Biogen, and Vertex Pharmaceuticals.