Wall Street is going gaga over the healthcare and biotech sector. The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) rallied 9% in four days. TheSPDR S&P Biotech (ETF) (NYSEARCA:XBI) rallied even more.
These are impressive moves that deserve respect. But I cannot chase it if I am not already on board the trade. Or I will end up buying someone elses profits. Wall Street loves to trade memes these days. A few weeks ago the IBB was dead money, now they cant have enough of it.
The hoopla centers around expectations from the new healthcare bill. I think we are giving it too much credit. We dont know if it will pass and even if it does, we dont know its full effects. But I am willing to bet that it wont be better to the sector than Obamacare was. This new bill is likely to be less, and therefore we could have a disappointment period coming.
Click to Enlarge Before you label me a perma-bear, I was a fan of the IBB a few weeks ago. Instead of chasing the momentum after it happens, a bit a good homework delivered great results. Case in point is this massive win from a bullish trade I shared on May 23 which yielded easy profits and out of thin air.
Now that everyone and their sister is chasing this rally in the IBB, I am ready to try and short it. Before you send out the posse to arrest me for daring to short the hot topic du jour, my trade is not against the sector, but rather is my bet against the short-term price action. I like to go long IBB on weakness but here I see the potential for a dip.
A lot of the enthusiasm is tied to politicians doing the right thing, and I am not so sure they will deliver. Even if they do, its probably going to take longer and be less than we expect. Eventually, traders will get antsy and lose interest and the IBB bids will abate, thereby creating a small vacuum below the current steep wedge. Therein lies the opportunity.
The Bearish Bet: Buy the IBB Aug $315/310 debit put spread for $1.50 or better per contract. If price falls through my spread in the next 56 days, I could triple my money. The faster and sooner the fall, the better otherwise time is my enemy.
To mitigate my out-of-pocket risk, I will leverage the value in the IBB ETF. I will sell longer dated puts to finance my bearish bet.
The Bank: Sell IBB Dec $270 puts and collect $5 per contract. This is a bullish trade which has a 90% theoretical chance of success. But if the IBB falls through my short put, then I will own the shares and could accrue losses below $265. But if Wall Street is correct about the political exuberance in the biotech sector, then I really have nothing to worry about. For a smaller risk profile, I could use a credit put spread instead.
Selling options is risky, so I never risk more than I am willing or able to lose.
Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernicand stocktwits at@racernic.
More:
Play the iShares Nasdaq Biotechnology Index (ETF)'s (IBB) Popularity for Free - Investorplace.com
- Is Weakness In Bloomage BioTechnology Corporation Limited (SHSE:688363) Stock A Sign That The Market Could be ... - Simply Wall St - March 28th, 2024
- Insiders were the biggest winners as Beijing Bohui Innovation Biotechnology Group Co., Ltd.'s (SZSE:300318) market ... - Simply Wall St - March 28th, 2024
- Biotechnology CEO and inventor of SiriusXM Satellite Radio Martine Rothblatt to deliver graduation address to the ... - EurekAlert - March 28th, 2024
- 6 biotechnology universities in the UK leading the way for future talent - Labiotech.eu - March 28th, 2024
- Is Vera Therapeutics Inc (VERA) a Bad Choice in Biotechnology Wednesday? - InvestorsObserver - March 28th, 2024
- Is G1 Therapeutics Inc (GTHX) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - March 28th, 2024
- The three-year underlying earnings growth at Anhui Anke Biotechnology (Group) (SZSE:300009) is promising, but the ... - Simply Wall St - March 28th, 2024
- Is Lyra Therapeutics Inc (LYRA) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - March 28th, 2024
- Should You Sell 4D Molecular Therapeutics Inc (FDMT) in Biotechnology Industry? - InvestorsObserver - March 28th, 2024
- SPMVV receives 47.9 lakh grant from the governments Department of Biotechnology - The Hindu - March 28th, 2024
- Where Does IGC Pharma Inc (IGC) Stock Fall in the Biotechnology Field After It Is Up 14.71% This Week? - InvestorsObserver - March 28th, 2024
- Report Lays Out Road Map to Transform Understanding of RNA and Invest in RNA Science and Biotechnology - National Academies of Sciences, Engineering,... - March 28th, 2024
- Is Akebia Therapeutics Inc (AKBA) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - March 28th, 2024
- Singapore and Indonesia to foster bilateralism in healthcare, digital health, and biotechnology - BSA bureau - March 28th, 2024
- Where Does Gossamer Bio Inc (GOSS) Stock Fall in the Biotechnology Field After It Is Lower By -14.07% This Week? - InvestorsObserver - March 28th, 2024
- Where Does Equillium Inc (EQ) Stock Fall in the Biotechnology Field After It Is Down -31.25% This Week? - InvestorsObserver - March 28th, 2024
- Q5A(R2) Viral Safety Evaluation of Biotechnology Products Derived from Cell Lines of Human or Animal Origin - FDA.gov - January 14th, 2024
- An Introduction to Biotechnology - PMC - National Center for ... - January 14th, 2024
- Should You Invest in the Invesco Biotechnology & Genome ETF (PBE)? - Yahoo Finance - January 14th, 2024
- Digital Life Norway (DLN) Initiative to foster and boost transdisciplinary biotechnology research and innovation - Open Access Government - January 14th, 2024
- Is Elevation Oncology Inc (ELEV) a Bad Choice in Biotechnology Thursday? - InvestorsObserver - January 14th, 2024
- Is Cytokinetics, Inc. (CYTK) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 14th, 2024
- Is Regeneron Pharmaceuticals Inc (REGN) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 14th, 2024
- Is Axsome Therapeutics Inc (AXSM) a Good Buy in the Biotechnology Industry? - InvestorsObserver - January 14th, 2024
- Where Does Immunovant Inc (IMVT) Stock Fall in the Biotechnology Field After It Is Higher By 11.63% This Week? - InvestorsObserver - January 14th, 2024
- Should Biotechnology Stock Harpoon Therapeutics Inc (HARP) Be in Your Portfolio Wednesday? - InvestorsObserver - November 24th, 2023
- Should Biotechnology Stock SpringWorks Therapeutics Inc (SWTX) Be in Your Portfolio Wednesday? - InvestorsObserver - November 24th, 2023
- Where Does Cassava Sciences Inc (SAVA) Stock Fall in the Biotechnology Field After It Has Fallen -1.24% This Week? - InvestorsObserver - November 24th, 2023
- Where Does Kalvista Pharmaceuticals Inc (KALV) Stock Fall in the Biotechnology Field After It Is Lower By -1.04% This Week? - InvestorsObserver - November 24th, 2023
- Should Biotechnology Stock Theravance Biopharma Inc (TBPH) Be in Your Portfolio Thursday? - InvestorsObserver - April 23rd, 2023
- Where Will Sana Biotechnology Inc (SANA) Stock Go Next After It Is Down 1.35% in a Week? - InvestorsObserver - April 23rd, 2023
- Where Does Novo Nordisk A/S (NVO) Stock Fall in the Biotechnology Field After It Has Fallen -1.71% This Week? - InvestorsObserver - April 23rd, 2023
- Where Does Seagen Inc (SGEN) Stock Fall in the Biotechnology Field After It Is Lower By -0.81% This Week? - InvestorsObserver - April 23rd, 2023
- MSc Admissions at Institute of Bioinformatics and Applied Biotechnology, Bengaluru - Mathrubhumi English - April 23rd, 2023
- What is Biotechnology? Definition, Types and Applications | TechTarget - March 28th, 2023
- Biotechnology - Applications of biotechnology | Britannica - March 28th, 2023
- Biotechnology | FAO | Food and Agriculture Organization of the United ... - March 28th, 2023
- What is Biotechnology? Types and Applications - Iberdrola - March 28th, 2023
- Should Biotechnology Stock Checkpoint Therapeutics Inc (CKPT) Be in Your Portfolio Monday? - InvestorsObserver - March 28th, 2023
- Where Does IGM Biosciences Inc (IGMS) Stock Fall in the Biotechnology Field After It Has Fallen -1.80% This Week? - InvestorsObserver - March 28th, 2023
- Is Day One Biopharmaceuticals Inc (DAWN) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - March 28th, 2023
- Where Does Jasper Therapeutics Inc (JSPR) Stock Fall in the Biotechnology Field After It Has Risen 3.16% This Week? - InvestorsObserver - March 28th, 2023
- Is Evaxion Biotech A/S - ADR (EVAX) a Leader in the Biotechnology Industry? - InvestorsObserver - February 14th, 2023
- Where Does Oncolytics Biotech Inc (ONCY) Stock Fall in the Biotechnology Field After It Has Risen 1.72% This Week? - InvestorsObserver - February 14th, 2023
- Where Does Surrozen Inc (SRZN) Stock Fall in the Biotechnology Field After It Is Up 59.74% This Week? - InvestorsObserver - February 14th, 2023
- International Biotechnology Trust's Investment Manager to Focus on Core Healthcare Business - Marketscreener.com - February 14th, 2023
- Where Does Ocugen Inc (OCGN) Stock Fall in the Biotechnology Field After It Is Lower By -14.73% This Week? - InvestorsObserver - February 14th, 2023
- Is Protagonist Therapeutics Inc (PTGX) a Smart Choice in Biotechnology Friday? - InvestorsObserver - February 14th, 2023
- Where Does Kiora Pharmaceuticals Inc (KPRX) Stock Fall in the Biotechnology Field After It Has Risen 33.24% This Week? - InvestorsObserver - February 14th, 2023
- Where Does Novavax Inc (NVAX) Stock Fall in the Biotechnology Field After It Is Up 0.46% This Week? - InvestorsObserver - February 14th, 2023
- City of Vacaville Introduces Next Generation to Biotechnology and Advanced Manufacturing - Financial Post - February 6th, 2023
- Is Incyte Corporation (INCY) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - February 6th, 2023
- Where Does Catalyst Pharmaceuticals Inc (CPRX) Stock Fall in the Biotechnology Field After It Is Down -3.88% This Week? - InvestorsObserver - February 6th, 2023
- Where Does Summit Therapeutics Inc (SMMT) Stock Fall in the Biotechnology Field After It Is Up 8.63% This Week? - InvestorsObserver - February 6th, 2023
- Where Does Compass Therapeutics Inc. (CMPX) Stock Fall in the Biotechnology Field After It Is Down -2.89% This Week? - InvestorsObserver - February 6th, 2023
- Should You Be Impressed By Puma Biotechnology, Inc.'s (NASDAQ:PBYI) ROE? - Simply Wall St - January 21st, 2023
- Where Does Palisade Bio Inc (PALI) Stock Fall in the Biotechnology Field After It Is Lower By -11.27% This Week? - InvestorsObserver - January 21st, 2023
- Is Autolus Therapeutics PLC (AUTL) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 21st, 2023
- Where Does Edesa Biotech Inc (EDSA) Stock Fall in the Biotechnology Field After It Has Fallen -39.16% This Week? - InvestorsObserver - January 21st, 2023
- Where Does Vaxcyte Inc (PCVX) Stock Fall in the Biotechnology Field After It Has Fallen -7.21% This Week? - InvestorsObserver - January 12th, 2023
- Where Does CytomX Therapeutics Inc (CTMX) Stock Fall in the Biotechnology Field After It Is Up 61.68% This Week? - InvestorsObserver - January 12th, 2023
- Where Does Vyant Bio Inc (VYNT) Stock Fall in the Biotechnology Field After It Is Up 36.36% This Week? - InvestorsObserver - January 12th, 2023
- Is CTI BioPharma Corp (CTIC) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 12th, 2023
- Where Does Jaguar Health Inc (JAGX) Stock Fall in the Biotechnology Field After It Has Gained 22.22% This Week? - InvestorsObserver - January 12th, 2023
- Where Does Geron Corporation (GERN) Stock Fall in the Biotechnology Field After It Has Gained 9.09% This Week? - InvestorsObserver - January 12th, 2023
- Is OncoSec Medical Inc (ONCS) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 12th, 2023
- What is Biotechnology? Master of Biotechnology - January 4th, 2023
- Where Does Chemomab Therapeutics Ltd - ADR (CMMB) Stock Fall in the Biotechnology Field After It Has Gained 52.97% This Week? - InvestorsObserver - January 4th, 2023
- Should Biotechnology Stock Galera Therapeutics Inc (GRTX) Be in Your Portfolio Wednesday? - InvestorsObserver - January 4th, 2023
- Where Does 180 Life Sciences Corp (ATNF) Stock Fall in the Biotechnology Field After It Is Lower By -26.07% This Week? - InvestorsObserver - January 4th, 2023
- Is Adaptive Biotechnologies Corp (ADPT) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 4th, 2023
- Is ImmunoGen, Inc. (IMGN) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 4th, 2023
- Is DBV Technologies SA - ADR (DBVT) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - January 4th, 2023
- Does PDS Biotechnology Corp (PDSB) Have What it Takes to be in Your Portfolio Wednesday? - InvestorsObserver - December 27th, 2022
- Where Does Intercept Pharmaceuticals Inc (ICPT) Stock Fall in the Biotechnology Field After It Is Lower By -10.50% This Week? - InvestorsObserver - December 27th, 2022
- Where Does Merrimack Pharmaceuticals Inc (MACK) Stock Fall in the Biotechnology Field After It Has Fallen -10.39% This Week? - InvestorsObserver - December 27th, 2022
- Where Does Compass Therapeutics Inc. (CMPX) Stock Fall in the Biotechnology Field After It Is Higher By 2.68% This Week? - InvestorsObserver - December 27th, 2022
- Where Does Allogene Therapeutics Inc (ALLO) Stock Fall in the Biotechnology Field After It Is Lower By -19.38% This Week? - InvestorsObserver - December 27th, 2022
- Where Does Oramed Pharmaceuticals, Inc. (ORMP) Stock Fall in the Biotechnology Field After It Is Higher By 11.42% This Week? - InvestorsObserver - December 27th, 2022
- Is Calithera Biosciences Inc (CALA) Stock at the Top of the Biotechnology Industry? - InvestorsObserver - December 27th, 2022