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Covering IBB Short Sale Into Historic Market Sell-Off

Mar. 02, 2020 10:52 AM ETiShares Biotechnology ETF (IBB)


  • The coronavirus is a tragic, global event that has negatively impacted markets. This downside catalyst has given us the worst week since the financial crisis.
  • Current market weakness is giving us a profitable opportunity to cover our 1/7/20 short sale of the IBB biotech ETF.
  • Resultantly, covering this profitable short now gives us an opportunistic cash position to employ into any coming relief rally.
  • Our 1/7/20 article stated our belief that 2020 would be a trading range market. If this current volatility continues this year, then we are well positioned to deliver significant market outperformance as a short-term trader.
  • Trader's Idea Flow seeks to deliver performance in all market seasons. We believe that trading range markets and also bear markets present ideal conditions for our trading philosophy to deliver significant outperformance.
  • This idea was discussed in more depth with members of my private investing community, Trader's Idea Flow. Get started today »

Our 1/7/20 trading call to sell short was based upon our view that the market came into 2020 fully valued. By some measures we believed the market was overvalued. We selected the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) IBB as a trading vehicle for our short trade with the view that the IBB would deliver greater downside volatility. Today we are choosing to cover our short into the weakness of this week's historic selloff due primarily to the global coronavirus epidemic. We may be early in our cover, but this has been a successful short-term trade delivering a gain of nearly 7%.

The IBB ETF seeks investment results that correspond generally to the price and yield performance of the Nasdaq Biotechnology Index. The IBB often trades with the overall market and carries a Beta coefficient of 1.33 making it 33% more volatile than the entire market. As short-term traders, we are attracted to greater volatility that may enable our trading calls to deliver superior performance if we are correct in our speculation on the direction of our trading call. Conversely, if we are wrong in our trading call, then this higher Beta will increase our risk for loss of capital on the trade. We chose the IBB as the vehicle to implement our short sale on the market in the hope of achieving greater volatility to the downside of the market. Importantly, the IBB ETF would largely ameliorate any M&A activity risk that would accompany the short sale of some individual biotech stocks.

We also stated in our 1/7/20 article that we believed 2020 would be a trading range market. In the scenario of a trading range market the ability to generate gains in a down market is extremely valuable. Furthermore, closing our profitable short trade has now given us a

Members of our Trader's Idea Flow community always receive our trading ideas and updates first. Traders know that timing is everything. Receiving information early and being prepared ahead of the competition is valuable. Please feel welcome to free trial our marketplace service, Trader's Idea Flow. Just one successful trading idea can cover the cost of many years of the very affordable subscription price.

This article was written by

Bull & Bear Trading profile picture

Bull & Bear Trading is a stockbroker, former hedge fund manager and NYSE-member with over 30 years of experience in financial services, including time with the firm Oppenheimer & Co. He managed his own hedge fund with a modest amount of AUM during the dotcom boom and learned valuable lessons in the process. A veteran of several major tech innovation cycles, starting with the PC Tech Revolution of the 1980s, he has learned that these cycles can become major, multi-year, wealth creation events.

He leads the investing group Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in IBB over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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