Bullish option traders have turned fast profits in the SPDR S&P Biotech Fund ($XBI).
On Nov. 17, Market Rebellion’s Unusual Option Activity Service found that 2,750 Weekly $72 calls, expiring Nov. 24, were bought for $0.85 to $0.90 with shares at $71.27. This was clearly fresh buying, as open interest in the contract was just 509 before the activity appeared.
Those calls traded for as much as $2.61 today, a 190% return, while the stock rose 4.31% in the same time period, underscoring how 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.
The XBI is up 1.21% to $73.54 in afternoon trade.
Ready to start trading? Try Unusual Option Activity Essential. Learn how you can follow the “smart money” with a fresh UOA trade idea each week – including technical levels so that you know how to manage each trade!