A Sign Of Things To Come? Traders Are Betting On More Biotech Mergers
Even with modest August losses for the S&P 500 and the broader healthcare sector, biotechnology stocks and exchange traded funds (ETFs) are surging. The S&P Biotechnology Select Industry Index is up more than 3 percent this month and has been ripping higher in recent days.
Biotechnology was bolstered Monday on news of Gilead Sciences Inc. (NASDAQ:GILD) acquiring Kite Pharma Inc. (NASDAQ:KITE) for $12 billion. The subsequent bounce in Kite has made the stock the largest component in the S&P Biotechnology Select Industry Index.
This is proving to be good news for the Direxion Daily S&P Biotech Bull 3X Shares (NYSE:LABU), arguably the king among leveraged biotechnology ETFs. LABU attempts to deliver triple the daily returns of the S&P Biotechnology Select Industry Index. Recent biotech bullishness has pushed LABU up by more than 13 percent over just the past week.
Playing Biotech The Tactical Way
While LABU's big gain over the past week is impressive (and seductive), traders should note this is a leveraged ETF and is best deployed over intraday holding periods. Like any leveraged ETF, LABU is volatile. In fact, it has been the most volatile of Direxion's leveraged bullish ETFs over the past month, according to issuer data. Actually, that competition is not all that close.
As LABU has proved in recent days, the ETF can reward traders in just one day and it is potentially an ideal way to play a steady spate of news pertaining to biotechnology equities, including FDA approval news and, of course, mergers and acquisitions news.
Data suggest traders are preparing for more biotech upside with LABU. Over the past month, LABU is averaging daily inflows of nearly $2.1 million, according to Direxion data. Only one of Direxion's leveraged bullish ETFs is averaging larger inflows over the same span.
Dare To Dance With The Bear
With its penchant for volatility, the biotech sector does not move up in a straight line, a thesis that can reward well-timed, short-term, bearish trades. Enter the Direxion Daily S&P Biotech Bear 3X Shares (NYSE:LABD). LABD is designed to deliver triple the daily inverse returns of the S&P Biotechnology Select Industry Index.
Like its bullish counterpart LABU, LABD is best used on an intraday basis. Volatility metrics prove as much. Over the past month, LABD has been the most volatile of Direxion's inverse leveraged ETFs, another competition that has not been close.
Still, traders are warming up to LABD, too. During that month, the ETF is averaging more than $56,000 of inflows per day.
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