$XOP delivers big for put buyers

Longer-term bearish bets on the SPDR S&P 500 Oil and Gas Exploration & Production Fund have rewarded their buyers with huge profits.

On Oct. 30, Investitute’s tracking systems identified the purchase of 13,300 June $33 puts, as part of a spread, for $2.87 with shares at $34.29. This was clearly a new position, as open interest in the strike was a mere 28 contracts before the trade occurred. Investitute co-founder Pete Najarian cited the heavy buying at that time on CNBC’s “Halftime Report.”

Those puts traded for $7.45 today, just over 2.5 times their purchase price. The stock fell 23.91% in the same time frame, a large move but nothing like 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.

XOP was down 2.33% to $25.35 today. The exchange-traded fund has dropped with the price of oil in the last several weeks.