$XOM bears quadruple their money in days

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

On Tuesday, Feb. 25, our Unusual Activity Tracking systems found that 4,000 March $54 puts were bought for $0.85 as part of a bearish roll with shares at $56.08. This was clearly fresh buying, as volume was well above the strike’s existing open interest of 293 contracts.

Those puts traded for as much as $3.75 today, more than 4 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 last down 4.26% to $50.75 today. The energy giant has pulled back to levels not seen since early 2005 with the rest of its sector as the price of crude has fallen below $50 per barrel.