The SPDR Energy Fund (XLE) is pumping fast profits to bearish option traders this session.
On Sep. 28, Market Rebellion’s Unusual Option Activity Service found that 34,000 Weekly $89 puts, expiring this Friday, Oct. 6, were bought for $0.28 to $0.39 with shares at $92.16. This was clearly fresh buying, as the open interest in the contract before the activity appeared was just 1,167.
Those puts traded for as much as $1.52 today, a 289.74% return, while the stock fell 4.5% 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 1.99% to close at $88.59.
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!