Biotech stocks have been surging higher lately as investors hunger for good news on coronavirus treatments and vaccine candidates.
The IBB Nasdaq Biotechnology iShares ETF is up 40% since its March 16 low and hit a new all-time high on Tuesday of $136 before pulling back a bit to $129 as of Thursday’s close.
And with that incredible run higher, one options trader made a killing.
This options trader recently cashed out on a bet netting an $11 million profit, and is using some of the proceeds to place another $4 million bet that the biotech space is poised to continue climbing higher.
“We need to look back to April 1, when this trader bought $8,000 of the June 120 calls,” Optimize Advisors President Michael Khouw explained. “[On Tuesday], they sold those for an $11 million profit, took the proceeds and then spent $4 million to buy 11,000 of the June 138 calls.”
Khouw added, “Obviously the trader, who was previously bullish and profited handsomely from this position, has now made an even larger-sized bet that this run in [IBB] can continue.”
This mystery options trader isn’t the only one who’s wagering that the biotech sector will head higher.
Khouw pointed out that more than five times the daily volume of IBB call contracts traded hands during Tuesday’s session alone.
Eli Casdin, founder and chief investment officer of the New York-based hedge fund Casdin Capital, said recently that life sciences, including the biotech sector, is likely to be the biggest growth story of the next decade.
“Investors should recognize that an industry with a lot of growth ahead isn’t going to sustain disruption in the same way that much of the legacy economy will,” Casdin said. “And companies with strong balance sheets and management teams will carry the day.”
Among the IBB’s holdings are names like Vertex Pharmaceuticals (NASDAQ: VRTX), Gilead Sciences (NASDAQ: GILD), Regeneron Pharmceuticals (NASDAQ: REGN), and Seattle Genetics (NASDAQ: SGEN), all of which have surged higher this year. Vertex is up 26.5%, Gilead has risen nearly 19%, Regeneron has rocketed 52% higher, and Seattle Genetics is up just over 40% since the start of the year.
Gilead has been making headlines recently as its experimental drug, remdesivir, has shown promising results in treating the coronavirus in preliminary data. Elsewhere, Regeneron’s and Sanofi’s (NASDAQ: SNY) arthritis drug Kevzara is in separate phase 2/3 trials in hospitalized COVID-19 patients, where positive benefits from the drug have been seen in those patients sickest with the deadly virus.
And Citi Research analyst Mohit Bansal wrote in a note that Vertex may be the best biotech on the market.
“VRTX appears miles ahead of others given its growth profile and reasonable valuation despite growth,” Bansal said, adding that Vertex also boasts a “trifecta of high growth, long patent life and major pipeline catalysts in 2020.”