$XLY puts double bears’ money

Bearish option traders have turned big profits in the Consumer Discretionary Select Sector SPDR Fund (XLY).

On Sep. 10, Market Rebellion’s Unusual Activity tracking systems found that 3,950 Weekly $148 puts, expiring tomorrow, Sep. 25, were purchased for $2.44 to $2.73 as part of a complex bearish spread with shares at $149.85. Volume was far above the strike’s open interest of 34 contracts before the trade occurred, showing that it was a new position.

Those puts have traded for $7.26 today, over 2.5 times their purchase prices. The stock fell 6.07% in the same time period, illustrating the kind of leverage that can be achieved through options.

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.

XLY opened lower today but was last 0.51% higher at $142.86. The exchange-traded fund, which tracks a basket of consumer discretionary names such as McDonald’s (MCD) and Nike (NIKE), has declined since making a new all-time-high on Sep. 2 as concerns surrounding the U.S. election and a second wave of the coronavirus emerge.