The SPDR Energy Fund (XLE) is pumping fast profits to bearish option traders this session.
On Jan. 3, Market Rebellion’s Unusual Option Activity Service found that 10,000 Weekly $83.50 puts, expiring this Friday, were bought for $0.26 to $0.29 with shares at $87.19. This was clearly fresh buying, as the open interest in the contract before the activity appeared was just 294.
Those puts traded for as much as $1.35 today, over 4.5 times their purchase price. The stock fell 4.68% 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 down 0.012% to close at $84.39.
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