LABD has competition in the form of the double-leveraged of the ProShares Ultrashort Nasdaq Biotechnology (NasdaqGM: BIS), inverse answer to IBB. Each could prove rewarding in the event of a biotech pullback, but if such an event is triggered by smaller companies LABD could be the place to be because the equal-weight XBI is significantly more exposed to mid- and small-cap biotechs than the large-cap focused IBB.

“Biotech stocks, especially the smaller ones, have the natural built-in risk that bad news can cause share prices to plummet overnight, as in the case of Celladon Corp, when its advanced heart care study did not meet expectations. This decline served as a startling reminder to investors of the one-day decline potential inherent in biotech stocks,” adds Direxion. “And since biotech stocks have been a leading market sector, a decline in this space could be a warning shot for the entire market, so all investors and traders should be paying attention.”

Direxion Daily S&P Biotech Bear Shares