The biotechnology sector offers investors the opportunity to bet big and win big, but the potential downside can make a huge dent in your wallet. Perhaps a biotech exchange traded fund (ETF) is more to your liking?

The largest and most liquid broad-based biotech sector iShares Nasdaq Biotechnology (NASDAQ: IBB), which reflects the performance of the Nasdaq Biotechnology Index, offers the opportunity to gain exposure to biotechs while mitigating the risk from picking out potential duds in the sector, comments Jim Woods for InvestorPlace.

Often, big moves in biotech stocks come from successful stages of drug development. The biggest risk is that one unsuccessful stage, which sends a company back to square one. The biggest reward is approval, of course. [Play the Booming Biotech Sector With ETFs.]

If you believe the sector will be up or down in the short-term, consider ProShares Ultra Biotechnology (NYSEArca: BIB) or ProShares UltraShort NASDAQ Biotechnology (NYSEArca: BIS) to capitalize on quick moves.

If you want to play it straight, then there are these in addition to IBB:

  • SPDR S&P Biotech ETF (NYSEArca: XBI)
  • First Trust Amex Biotech (NYSEAca: FBT)

This year is shaping up to be a good one for biotech companies.

  • The sector has been awash in big mergers. Back in August, Sanofi-Aventis (NASDAQ: SNY) made a $69 a share offer to acquire a troubled Genzyme (NASDAQ: GENZ) with a poor track record, but now, a few bullish Genzyme analysts estimate $80 a share is more suitable, reports Brett Chase for Minyanville.  [Deal-Making Drives ETFs Higher.]
  • Demand for pharmaceuticals has stayed fairly consistent, even through the recession. Emerging market demand is expected to help pick up any slack.

For more information on the biotech sector, visit our biotechnology category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.