3 Ways to Play This Biotech Stocks Dip

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biotech stocks - 3 Ways to Play This Biotech Stocks Dip

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The bid for world domination continues for Nasdaq Composite this week. Sure, the entire U.S. market is on fire since the November election. But it’s the tech-heavy Nasdaq that’s leading the charge these days. And, as we’ll see in a moment, biotech stocks are offering a sweet setup for the week ahead.

3 Ways to Play This Biotech Stocks Dip -- XBI CELG AMGN

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Just check out the year-to-date gains of the big three indexes. The Dow Jones Industrial Average and S&P 500 indexes have cobbled together 5.4% and 5.8% gains, respectively. Meanwhile, the Nasdaq Composite has climbed 8.6%.

Buyers averse to chasing are certainly getting skittish with markets at these lofty levels. And yet, those who have played it safe have been left in the dust as the bull market rages on with nary a pullback to provide a lower-risk entry.

If you’re seeking a solution, look no further. The answer to gaming the bull lies with identifying industries and sectors that have dropped to better entry levels. Although the broad indexes continue to notch new highs day after day, sector rotation beneath the surface has delivered pullbacks aplenty along the way. Biotech stocks carved out a quality retracement last week and are poised to continue their uptrend.

Let’s explore three ways to capitalize on this biotech stock drop.

3 Ways to Play This Biotech Stocks Dip: SPDR S&P Biotech (ETF) (XBI)

3 Ways to Play this Biotech Stock Dip: SPDR S&P Biotech (ETF) (XBI)

Source: OptionsAnalytix

First up is the Street’s most popular biotech industry ETF, the SPDR S&P Biotech (ETF) (NYSEARCA:XBI). The fund boasts liquidity and options contracts aplenty. Since the turn of the year, XBI has made significant upside strides. Since tagging a new 52-week high on Feb. 21, the fund has quietly receded to its 20-day moving average.

For the uninitiated, the 20-day moving average is often a gathering ground for aggressive dip buyers. And with XBI popping in early morning trading Monday, it appears bulls are sallying forth with buy orders.

Implied volatility remains depressed for XBI options, making long calls an attractive route for the anticipated pop. Buy the Apr $68 calls for around $3.

3 Ways to Play This Biotech Stocks Dip: Celgene (CELG)

3 Ways to Play this Biotech Stock Dip: Celgene (CELG)

Source: OptionsAnalytix

Traders preferring to play individual biotech companies should consider Celgene Corporation (NASDAQ:CELG). Since launching higher last November, CELG has been in base-building mode. While its gains have paled in comparison to the Nasdaq, the stock has awoken over the past month. Its ascent carried shares back above the 20-day and 50-day moving averages. And now, both indicators are rising in bullish fashion.

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Last week’s bout of profit taking returned CELG shares to a lower-risk entry point. Like its predecessor, Celgene options remain cheap. If the stock can pop above $119.45, consider buying the Apr $120 calls for around $4.10.

3 Ways to Play This Biotech Stocks Dip: Amgen (AMGN)

3 Ways to Play this Biotech Stock Dip: Amgen (AMGN)

Source: OptionsAnalytix

Amgen, Inc. (NASDAQ:AMGN) rounds out today’s trio with a stellar uptrend. Relative strength has been its watchword. While the broader biotech sector was slipping last week, AMGN stock was carving out new highs day after day. On the positive side, strength often begets more strength which makes AMGN all the more attractive here. Unfortunately, its lofty status leaves much to be desired on the risk-reward side.

Caution wins the day with AMGN right now. Wait for a dip towards the $170 level, then grab long Apr calls. The $170 strike should do the trick.

At the time of this writing, Tyler Craig had no positions in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/play-biotech-stocks-xbi-celg-amgn/.

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