The SPDR Energy Fund (XLE) is pumping fast profits to bearish option traders this session.
On Oct. 2, Market Rebellion’s Unusual Option Activity Service found that 12,500 Weekly $87 puts, expiring Oct. 13, were bought for $0.25 with shares at $88.63. This was clearly fresh buying, as the open interest in the contract before the activity appeared was just 1,053.
Those puts traded for as much as $2.72 today, a 988% return, while the stock fell 4.29% 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 ended the session down 0.62% at $85.22.
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