Biotech selloff could be harbinger Of further decline | Reuters
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`http://www.reuters.com/article/us-biotech-stocks-options-idUSBREA2K...
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`NEW YORK | BY ANGELA MOON
`
`Biotechnology stocks suffered their worst day since October 2011 on Friday, raising
`questions among investors whether the sector is finally running out of momentum.
`
`The selloff started early, following news that U.S. lawmakers have asked Gilead Sciences
`Inc (GILD.O) to explain the $84,000 price tag of its new hepatitis C drug Sovaldi, which is
`encountering resistance from health insurers and state Medicaid programs.
`
`The Nasdaq biotechnology index .NBI fell 4.4 percent to 2,577.21, closing below its 50-day
`average for the first time since November 2013. In less than a month, the index posted
`daily declines of more than 2 percent four times.
`
`"Once the Congress gets involved, there is a risk for the whole sector, especially if the
`focus of the action is primarily on pricing," said Tim Ghriskey, chief investment officer of
`Solaris Asset Management.
`
`That could be problematic for biotech, a sector that has jumped more than 250 percent
`over the past five years. Investors in the options market have shifted activity to bets on
`further gains in the last year, and more analysts have buy ratings on biotech names than
`any other sector.
`
`"The sector has also gotten more vulnerable after this huge rally and with valuations above
`historic averages," there is going to be selling pressure for at least several weeks,
`Ghriskey said.
`
`Options trading in Gilead Sciences jumped three times the recent daily average, with $65
`puts that expire in January and $67.50 puts that expire in April among the top three trades
`of the day. The stock closed down 4.6 percent to $72.07.
`
`The iShares Nasdaq Biotech exchange-traded fund (IBB.P) plunged 4.3 percent to
`$246.98 on Friday on 5.4 million shares traded, tripling the average daily volume over the
`past 50 days. Options in that ETF were also active, with trading volume nearly three times
`the recent average.
`
`Short interest in the top 10 performers in the biotech sector in 2014 stood at about 6.2
`percent on average as of end of February, according to data compiled by Reuters, higher
`than the total cumulative short interest on the S&P 500 components which surged to 4
`percent, the highest since mid-2012.
`
`"The biotechs are getting hammered because they have been a decent performer, so that
`is an area that people are using for cash. They are raising some cash and they are taking
`it out of sectors that have performed the best," said Ken Polcari, director of the NYSE floor
`division at O'Neil Securities in New York.
`
`Despite the recent decline, the biotechnology sector is still up nearly 9 percent for the year,
`significantly higher than the 2.4 percent gain for the Nasdaq. The biotech sector has risen
`in five straight years, for a total gain of 253 percent.
`
`A study looking at options activity in the top 50 biotech performers in 2014 shows fewer
`bearish bets placed compared to a year ago. That suggests sentiment has grown more
`positive as investors are more fearful of missing gains than protecting against losses.
`
`"We all talk about how much run the sector has had over the past couple of years but the
`reality is, there is still a lot of optimism out there," said Ryan Detrick, senior analyst at
`Schaeffer's in Cincinnati, Ohio.
`
`Schaeffer's Open Interest Ratio (SOIR), which calculates the put-to-call ratio of options
`expiring in the next three months showed an average reading of 0.974 for the top 50
`biotech performers this year in the Russell 3000 that have active options trading.
`
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`This was much lower than 1.628 a year ago, according to data compiled by Bespoke
`Investment Group and Schaeffer's Investment Research.
`
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`In other words, based on options that expire in March, April and May, less than one put
`was traded for every call in 39 of the top 50 biotech performers.
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`1/12/2016 3:56 PM
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`Biotech selloff could be harbinger Of further decline | Reuters
`
`http://www.reuters.com/article/us-biotech-stocks-options-idUSBREA2K...
`
`The biotech sector also had the highest buy rating out of 38 sectors followed by
`Schaeffer's, with 66 percent of the analysts saying biotech stocks are still a good buy. Only
`three others had more than 60 percent buy ratings - financials with 64 percent, social
`networking with 63 percent and electronics with 62 percent.
`
`(Additional reporting by Chuck Mikolajczak; editing by Andrew Hay)
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`Biotech selloff could be harbinger Of further decline | Reuters
`
`http://www.reuters.com/article/us-biotech-stocks-options-idUSBREA2K...
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