$XOM bears post quick gains

It has taken less than a week for downside option positions in ExxonMobil to pay off big.

On April 26, Investitute’s proprietary programs found that 2,222 Weekly $80 puts expiring on May 3 were bought for $0.90 above open interest with shares at $79.74. This was clearly fresh buying, as volume was well above the strike’s existing open interest of 1,460 contracts.

Those puts traded for as much as $2.27 today, more than 2.5 times their purchase price. The stock fell 2.57% 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.

XOM was down 1.75% to $77.29 today. The energy giant has pulled back with the rest of its sector as the price of oil has fallen recently.