$XBI puts see threefold gains

Bearish option traders have turned large profits in the SPDR S&P Biotech Fund.

On Oct. 2, Investitute’s market scanners identified the purchase of 5,000 November $93 puts for $3.15 as part of a bearish spread with shares at $92.97. Open interest in the strike was only 883 contracts before the trade occurred, showing that this was a new position.

Those puts traded up to $9.75 today, more than 3 times their purchase price. The stock fell 10.37% in the same time frame, underscoring how options can far outperform moves in their underlying shares.

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 was down 2.26% to $83.49 today. The exchange-traded fund has seen losses accelerate since breaking below its 200-day moving average early this month.