The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotechnology exchange traded fund by assets, and the rival SPDR S&P Biotech ETF (NYSEArca: XBI) are performing well this year. Underscoring that point, the two widely followed biotech ETFs are up an average of 20.5% year-to-date and some traders believe biotechnology stocks and ETFs will continue surging.
Market observers are growing more bullish on the sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could pave the way for increased acquisitions in the sector.
“Meanwhile, the iShares Nasdaq Biotechnology ETF (IBB) and SPDR S&P Biotech ETF (XBI) just touched their highest points in more than a year, sparking a flurry of biotech options trading. What’s more, if recent history is any indicator, the IBB and XBI exchange-traded funds (ETFs) could be headed even higher in July, and now is an opportune time for short-term options buyers to strike,” reports Schaeffer’s Investment Research.
Investors are growing more bullish on the sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could pave the way for increased acquisitions in the sector. The White House is also looking to help the Food and Drug Administration (FDA) expedite new drug approvals, which could serve as a major catalyst for the biotechnology space.
“The SPDR S&P Biotech ETF (XBI) was last seen 2.9% higher at $76.33, and earlier rallied as high as $76.60 — territory not charted since September 2015. As with IBB, the shares of XBI have been in a channel of higher lows and highs since bottoming around $44 in February 2016, and the ETF is set to end atop the $73 neighborhood — a 61.8% Fibonacci retracement of its decline from its mid-2015 all-time high to last year’s lows,” according to Schaeffer’s.
ETF traders who are betting big on the biotechnology sector rebound have also utilized leveraged long options including the Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU), which takes the 3x or 300% daily performance of the S&P Biotechnology Select Industry Index. That is the same index XBI tracks.
Other options include the ProShares UltraPro Nasdaq Biotechnology (NasdaqGM: UBIO), which takes the 3x daily performance of the Nasdaq Biotechnology Index, and the ProShares Ultra Nasdaq Biotechnology (NasdaqGM: BIB), which takes the 2x performance of the same benchmark.
For more information on the biotech sector, visit our biotechnology category.