The SPDR Energy Fund (XLE) is pumping fast profits to bearish option traders this session.
Yesterday on Oct. 3, Market Rebellion’s Unusual Option Activity Service found that 34,000 Weekly $86 puts, expiring this Friday, Oct. 6, were bought for $0.25 with shares at $88.27. This was clearly fresh buying, as the open interest in the contract before the activity appeared was just 876.
Those puts traded for as much as $1.22 today, a 388% return, while the stock fell 3.32% in the same time frame, showing how quickly 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.
XLE was last down 3.3% at $85.61.
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