Biotech stocks have gone gangbusters.
The XBI ETF that tracks names in the sector has gained 20 percent in the last 13 trading days alone. However, one savvy trader believes the runup could be coming to an end.
On Wednesday, in what appeared to be a hedge against the bullish position, someone purchased the XBI July 62/56/50 ratio put spread collar.
"Somebody bought 5,000 of the July 56 puts in XBI. ... Then they sold 2,500 of the 62-strike calls with the same expiration and also sold 2,500 of the 50-strike puts," Optimize Advisors' co-founder and president, Mike Khouw, said Wednesday on CNBC's "Fast Money. "
Khouw also noted that, on Wednesday the options market was implying nearly three times the daily average put volume. He credited much of this action to the moves of the aforementioned trader and added that, overall, the trader spent around $637,000 worth of premium in the form of protection in the event the XBI falls below $56.
At current prices, the downside breakeven on this trade is around $54.70, or a drop of about 7 percent in the next 43 days.
"We're getting right up to the April highs," Khouw added in reference to XBI gains in 2016. "The lower put that the trader sold takes you right down to the early mid-May lows. This is a very creative and interesting hedge after a big run."
Since hitting an all-time high in July 2015, the XBI has proven to be a volatile stock, having since dropped 24 percent before May's runup.
Shares in XBI were up more than 1 percent midday Thursday.