$XBI keeps paying off for puts

Option traders posted gains on bearish positions in the SPDR S&P Biotech Fund today for the third time this month.

On Oct. 24, Investitute’s tracking systems detected the purchase of 10,000 November $77 puts for $1.38 with shares at $81.85. This was clearly a new position, as volume was above the strikes’s open interest of 9,899 contracts before that session began. Investitute co-founder Pete Najarian cited the unusual activity at that time on CNBC’s “Halftime Report.”

Those puts traded up to $2.90 this morning, more than twice their purchase price. The stock fell 4.17% in the same time frame, illustrating the kind of leverage that can be achieved quickly with options. It was the third winning put trade in the name posted on Investitute in the last three weeks.

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.

XBI closed today at $80.42, off 0.02% on the session. The exchange-traded fund bounced yesterday but is still down sharply since falling below its 200-day moving average early this month.