The Other Bearish Biotech ETF Is Looking Groovy, Too

Well, it is official. From its intraday high of $400.79 on July, the iShares Nasdaq Biotechnology ETF IBB has tumbled more than 13 percent, putting the largest biotech ETF firmly into correction territory.

As has been noted several times in this space in recent weeks, biotech retrenchment has created winners among some newly minted inverse, leveraged ETFs. The Direxion Daily S&P Biotech Bear 3X Shares LABD has been a show-stopper on that front, but for traders looking to directly participate in more downside for IBB, the triple-leveraged call to make is the ProShares UltraPro Short Nasdaq Biotechnology ETF ZBIO.

“Stating the obvious, biotechs are now officially in a correction phase. Valuations have dropped 14% since July 20 on high volume,” according to Seeking Alpha. “Long investors should keep their powder dry until at least a firm level of support forms.” 

Traders that do not want to keep their powder dry but do want to gain from further woes for IBB have an idea to consider with ZBIO, an ETF that is just two months. ZBIO's objective is to deliver three times the daily inverse returns of the Nasdaq Biotechnology Index, the same benchmark tracked by IBB.

To this point its young life, ZBIO has been a winner, returning more than 24 percent. The triple-leveraged ETF is up 2.7 percent today at this writing on volume that is approaching six times the daily average. Of course, traders should know exactly what they are betting on, or against in this case, before embracing an ETF like ZBIO.

Since ZBIO is seeking to deliver triple the daily inverse returns of IBB's index, look at IBB's holdings before rushing into the leveraged bear fund. Although IBB holds nearly 150 stocks, it is a top heavy, cap-weighted ETF dominated by biotech's “big five.” Translation: Celgene Corp. CELG, Amgen Inc. AMGN, Gilead Pharmaceuticals Inc. GILD, Regeneron Pharmaceuticals Inc. REGN and Biogen Inc. BIIB combine for almost 40 percent of IBB's weight.

That is to say traders long ZBIO will want to see some combination of those five stocks faltering in order to profit with ZBIO.

That is happening today as ZBIO, and yes we are sort of cheating here given how young the ETF is, is one of just four ETFs to hit an all-time high. LABD is one of the other three. And for those that like leverage, just not triple leverage, the older ProShares UltraShort Nasdaq Biotechnology ETF BIS is the double-leveraged bearish play on the Nasdaq Biotechnology Index. That ETF is up 3.1 percent today on more than double the average daily volume.