Biotech is the first momentum sector that unduct last week’s lows. We’re coming into some support around 150, with the rising 200 day moving average coming into play right around previous pivot levels from Setember-November of last year.
The sector isn’t properly oversold yet, but I think it’s “close enough” given how high implied volatility is sitting right now:
Sure, this is “low” by March 2020 standards, but from my experience with trading this name, anything above 25 tends to be a pretty good “fear” indicator. Not saying it’s *the* bottom, just that we are close.
Here’s the trade setup:
Fairly straightforward bet here. We think that the downside risk is less than what the options market is pricing in. 140 is a pretty good level to work with as it is below the 200 DMA as well as the range highs from last summer’s trading range.
I’m probably early on this– in fact my first fill was 0.40, so you’re getting a better initial fill than me. As IBB sells off, we will continue to scale into the same spreads, just at higher prices. If the spread goes for 0.15 I’m all out.
Given the current volatility, and the fact that we are using April options, it’s very possible that we see something where you can enter, exit for profits, and reenter if you want to trade aggressively like that.
At current fills of 0.55, and an exit of 0.15, that’s a potential profit of 0.40 per spread. With a margin of about 2.45 that puts return on capital at around 16%, which is a good RoC to start the trade at.