XBI Options Trader Targets New Highs By December

One options trader appears to have used December calls to bet on an end-of-year surge for the SPDR S&P Biotech ETF

Jun 30, 2017 at 3:01 PM
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SPDR S&P Biotech ETF (XBI) is trading down 1.2% at $77.29 today, on track to close out the week with a nearly 4% loss after Senate Republicans delayed a vote on the Obamacare replacement bill until after the July 4th recess. Nevertheless, XBI has historically been one of the best exchange-traded funds (ETF) to own in the month of July, while one options bull today is betting on a big biotech rally through year's end.

Taking a quick step back, nearly 14,600 calls have traded on XBI so far today -- almost two times the expected intraday amount. By comparison, put volume is running below its average intraday pace, with fewer than 5,500 contracts on the tape so far. 

More than three-fifths of the day's call volume is due to a three-way spread initiated in the December series. According to Trade-Alert, one speculator bought to open 2,700 December 80 calls and 1,800 December 90 calls, while simultaneously selling to open 4,500 December 85 calls. If this is the case, the goal of the options trader is for XBI to topple $85 by December options expiration -- a nearly 10% surge from current levels, and territory not charted since August 2015.

Widening the sentiment scope reveals put buyers have been unusually active in XBI's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the fund's 50-day put/call volume ratio of 2.41 ranks in the 86th annual percentile. Considering XBI shares are up nearly 31% year-to-date, though, this could be a result of shareholders protecting paper profits with an options hedge.

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