$IBB call buyers post healthy gains

The iShares Nasdaq Biotechnology Index Fund (IBB) traded to a new all-time-high today, handing significant profits to upside option positions.

On Apr. 1, Market Rebellion’s Unusual Activity programs found that 4,010 June $120 calls were bought for $2.15 to $2.20 as part of a bullish combo, selling an equivalent amount of downside puts, with shares at $105.02.

Those calls traded for as much as $16.87 today, nearly 8 times their purchase prices. The stock gained 29.26% at the same time, a huge move but still nowhere near that of its options on a relative basis.

Long calls lock in the price where a stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

IBB rose to a new all-time-high of $136.13 before pulling back with the broader market to end down 2.13% to $131.05 today. The index tracks the biotech sector, which has been in favor with the recent novel cornoavirus. The fund’s top five holdings are Amgen, Gilead Sciences, Vertex Pharmaceuticals, Regeneron, and Biogen.