Option Bears Cheer On Biotech ETF Debacle

Biotech ETFs iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) and SPDR S&P Biotech (ETF) (NYSEARCA:XBI) are selling off today

Jun 21, 2016 at 3:56 PM
facebook twitter linkedin

Aside from a few outperformers, biotech stocks are struggling today -- a big reason the Nasdaq Composite (COMP) is underperforming its index peers. The sector's struggles are illustrated by the heavy losses seen from biotech-tracking exchange-traded funds (ETF) iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) and SPDR S&P Biotech (ETF) (NYSEARCA:XBI). Below, we'll take a closer look at what's happening with biotech ETFs IBB and XBI, including recent options activity on each. 

IBB has lost 1.4% today to trade at $254.81. The ETF has been falling fast since topping out in the high 280s earlier this month -- an area that sent the shares lower back in April. At the same time, the $250 level could be acting as support again, as it did during the aforementioned sell-off. Overall, IBB has lost almost one-fourth of its value in 2016. 

In the meantime, short-term options traders have taken a decisively put-skewed approach. The ETF's Schaeffer's put/call open interest ratio (SOIR) of 1.92 shows that put open interest almost doubles call open interest among options expiring within the next three months. Plus, this SOIR ranks in the 83rd annual percentile, meaning such a put-skew is highly unusual for IBB options traders.

This trend can be seen in today's trading, as well. In fact, with put volume accelerated today, the weekly 6/24 options series is seeing heavy attention, with what appears to be buy-to-open activity at the 245- and 247.50-strike puts. Moreover, it appears bearish traders are also opening positions at the weekly 7/29 425-strike put. These option bears are hoping to see extended losses from iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) in the weeks ahead. 

As for XBI, the shares are 1.8% lower at $53.18, with the ETF testing a trendline that marks a series of higher lows since it bottomed near $44 in February. Like IBB, XBI has had a tough year, losing nearly one-fourth of its value, and options traders have been betting on more downside. 

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than seven puts have been bought to open for each call during the past 10 days. What's more, the resulting put/call volume ratio of 7.21 ranks just 15 percentage points from a 12-month high. In summary, there's been an unusual amount of put buying taking place in SPDR S&P Biotech's (ETF) (NYSEARCA:XBI) options pits. 

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners