Bearish traders are withdrawing large gains today in downside option trades on the SPDR S&P Financial Fund (XLF).
On Dec. 1, Market Rebellion’s Unusual Option Activity Service found that 35,000 Weekly $35 puts were bought for $0.11 to $0.15 with shares at $36.08. This was clearly fresh buying, as the open interest in the contract before the activity appeared was just 1,405.
Those puts traded up to $0.62 this session, over 4 times their purchase prices. The stock declined 4.46% in the same time period, a large move but nowhere near that of its options 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.
XLF closed down 0.88% at $34.73.
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