Splitting the difference

03/11/21
  • Biotech has sold off harder than NDX, SPX over past month
  • BEAM bounced this week after 41% correction
  • Options volatility profile may interest short-term traders

Following up on one of its biggest up days of the past year was bound to be an uphill battle for the Nasdaq 100 (NDX), but the tech index made a game of it yesterday, rallying as much as 1.5% in early trading before slipping. C’est la vie—tomorrow's another day.

But a different breed of tech has bounced a little more so far this week—biotech, which outgained the NDX on both Tuesday and Wednesday, as measured by the S&P 500 biotech sector.

The flipside of that coin is that biotech suffered a much bigger correction over the past month, falling roughly 22% between February 8 and March 8—twice as much as the NDX, and around five times as much as the S&P 500 (SPX). And many individual names tumbled more than that, including Beam Therapeutics (BEAM), which shed 41% from its February 8 peak of $120.75 to Monday’s close of $71.28:

Chart 1: Beam Therapeutics (BEAM), 8/26/20–3/10/21. Beam Therapeutics (BEAM) price chart. Rebound after 36% correction.

Source: Power E*TRADE


If BEAM has taken a bigger hit than many of its biotech brethren, it’s also had a least one additional bearish catalyst—the announcement that it would shell out $120 million to buy genetic medicine components maker Guide Therapeutics.1 That news was followed by a 25% intraday sell-off on February 23 that kicked off the sharpest portion of BEAM’s correction, ultimately sending the stock into negative territory for the year before Tuesday’s rebound.

BEAM is a pioneer in “base editing,” a newer corner of the CRISPR genetic engineering field that proponents hope may provide solutions for a wider range of diseases than the standard CRISPR gene-editing technology. (One of the company’s co-founders was, in fact, also a founder of high-profile gene editor Editas Medicine.)

And while those treatments may still be in the future, BEAM is currently the only company that holds a base-editing license for therapeutics,2 which could attract the attention of longer-term biotech bulls interested in niche markets, not to mention shorter-term players on the lookout for potentially oversold stocks.

Chart 2: Beam Therapeutics (BEAM) options implied volatility, 3/10/21. Lower IV for May, Aug. options

Source: Power E*TRADE


Traders looking into BEAM yesterday may have noticed a split in its implied volatility (IV) profile (above): IV for March and April options was above average, while IV for May and August options was below average.

Since low IV often translates into lower options prices (and vice versa), it could be an important distinction for traders to keep in mind, regardless of which side of the market they’re on.

Today’s numbers (all times ET): Weekly Jobless Claims (8:30 a.m.), JOLTS Job Openings (10 a.m.).

Today’s earnings include: Ulta Beauty (ULTA), Buckle (BKE), JinkoSolar (JKS), DocuSign (DOCU).

Today’s IPOs include: First High-School Education Group (FHS), Coupang (CPNG).

 

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1 Investor’s Business Daily. Beam Therapeutics Dives On $120 Million Takeover Of Guide Therapeutics. 2/23/21.
2 Generic Engineering and Biotechnology News. CRISPR 2.0: Base Editing in the Groove. 3/4/21.

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