Put Options Hot as IBB Tests Technical Support

Biotechs are hot today on big jumps for DNLI and SAGE

Dec 8, 2017 at 2:38 PM
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It's a big day for biotechs, with Denali Therapeutics (DNLI) debuting on the Nasdaq above its initial public offering price (IPO), and Sage Therapeutics (SAGE) continuing to hit record highs. Amid these sector tailwinds, the iShares Nasdaq Biotechnology ETF (IBB) is up 2.1% to trade at $106.29 -- extending its bounce off a key trendline. Here's a closer look at IBB, and how options traders have been betting on the exchange-traded fund (ETF).

After topping out at an all-time peak of $114.17 on Oct. 16, IBB pulled back to familiar support at the 200-day moving average. This trendline has ushered the shares higher for most of 2017, and quickly contained a late-May retreat. And with today's pop, the ETF is on track to nab a third straight weekly win -- its longest streak since July.

Options traders, however, have been bracing for more downside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), IBB's 10-day put/call volume ratio of 1.26 ranks higher than 77% of all comparable readings taken in the past year -- meaning puts have been bought to open relative to calls at a faster-than-usual clip.

Drilling down on the past two weeks' worth of data shows the December 96.67 and March 93.33 puts have seen the biggest increases in open interest -- with 8,501 and 11,593 contracts added, respectively. Trade-Alert indicates significant buy-to-open activity at each, suggesting some options traders expect IBB to breach the century mark over the next several months -- and as soon as next week, according to the front-month options bears.

Looking at the charts, IBB hasn't traded south of $100 since June, with its 200-day trendline currently located at $103.24. And with the shares still sporting a 20% year-to-date gain, it's possible some of this put buying at these out-of-the-money strikes is a result of shareholders protecting portfolios against any additional downside risk.

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