Huge Options Trade Hits Biotech ETF XBI

Drug stocks are struggling on the charts

by Josh Selway

Published on Jan 23, 2019 at 2:46 PM

It's turning out to be a down day for drug stocks, as the SPDR S&P Biotech ETF (XBI) trades down 1.8% at $79.43. In the meantime, one options trader is putting their money behind a three-way bearish trade, initiating a put spread with 10,000 contracts of the March 69 and 81 puts, while selling 5,000 at the March 85 call to help fund their endeavor. The put spread cost the trader $3.02 million ($3.02 per spread * 100 shares per contract * 10,000 contracts bought), and taking away the $1.15 million collected from selling the calls means the speculator's total cash outlay was $1.87 million.

Today's trading activity mimics what's been occurring on XBI during the past 10 days. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the exchange-traded fund (ETF) has seen 4.07 puts bought to open for every call in the past 10 days. This put/call volume ratio ranks in the 93rd percentile of its annual range -- confirming such levels of put buying are unusual.

Looking closer, the February 78 put saw the largest increase in open interest during that two-week time frame, followed by the February 77 put, while the 68 put from the same series saw heavy trading, too. Also popular were the March 68 and 78 puts.

On the charts, the biotech ETF is down more than 20% since falling from its August highs. Meanwhile, that early January bull gap above the 50-day moving average seen on the chart below was thanks to the J.P. Morgan Healthcare conference. Looking at just 2019, the shares sport an 11.2% gain.

biotech etf price

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