Almost a year ago, Janet Yellen warned that some of the high-flying sectors were in ‘bubble’ territory. Chief among this concern was the biotechnology sector as this segment has been surging for years now.
In fact, some broad biotechnology indexes have more than tripled the market’s gains over the past five years and there has been little capable of slowing down this quickly growing market. Many biotech indexes have actually added more than 50% since Yellen’s call alone, so the run appears to be continuing.
Time to Worry?
With that being said, biotech trading is definitely getting frothy right now. Big moves are almost a daily occurrence in this market, and as M&A activity and a possible Fed rate hike get further into focus, this volatility doesn’t appear to be slowing down anytime soon.
Traders can actually use this scenario to their advantage, regardless of whether the biotech sector is in a bubble or not. This can be done by looking at the leveraged and inverse segment of the biotech world where funds will see truly extreme volatility levels.
How to Play
Here, the two most popular options are in the 2x/-2x market and they come to us from ProShares trading under the tickers of (BIB - ETF report) and (BIS - ETF report). These track a large cap biotech index and provide investors with moves that are 200%/-200% of what the underlying index does on a daily basis.
Meanwhile, Direxion has stepped up to the plate in this space too, though it has launched 3x/-3x versions that reset on a daily basis. These products, (LABU - ETF report) and (LABD - ETF report), follow the S&P Biotechnology Select Industry Index which is actually prone to even more volatility than other biotech benchmarks. So while this isn’t the most popular product (and is pretty much brand new) it looks to be the top choice for traders in the biotech world looking to make a short term bet on the direction of this sector.
More Info
If you want to learn more about the world of leveraged biotechnology investing and some of the unleveraged options in the space too, make sure to check out our short video below. In it, we discuss some of the key points to remember in this market and how the biotech ETF space has been trading lately:
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