$XBI option bulls score gains

Bullish option traders have turned large gains in the SPDR S&P Biotech Fund ($XBI).

On Mar. 24, Market Rebellion’s Unusual Option Activity Service found that 8,400 May $78 calls were bought for $2.18 to $2.26 as part of a complex bullish spread with shares at $72.85. This was clearly fresh buying, as open interest in the contract was just 188 before the activity appeared.

Those calls traded for as much as $6.65 today, a 194.25% return, while the stock rose 15.35% in the same time period, underscoring how options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

XBI was up 4.36% to $83.21 at the close of trade.