It's time to buy biotech—here's why: Trader

Andrew Keene trades biotech

Traders have hammered biotech stocks, with the IBB, the iShares ETF that tracks the sector, losing 5 percent in the last two sessions. But rather than run from the selling, one trader who relies heavily on the charts is diving in.

According to Andrew Keene of Keene on the Market, the IBB had found "support" at its current levels. Looking at both a weekly and a daily chart of the biotech index, Keene noted that the IBB has responded particularly well when it has touched its 50-day moving average.

"We saw buyers back in April," said Keene, referring to the 50-day average, which comes into play at around $348. "And we saw buyers in February and December," when the index also touched that key technical level. Keene also said that the IBB hasn't touched its 100-day moving average since last October. With the IBB above both its 50- and hundred-day moving average at $350, Keene's plan is simple.

"Buy the pullbacks—any pullbacks whatsoever," said Keene. "This stock, on the daily chart and on the weekly chart, it lines up for buy opportunity."

Of course, with the IBB up 14 percent, and 55 percent over the past year, shares of the volatile IBB are not cheap.

So Keene is instead looking to the options market as a way to make a cheaper play. But rather than buy options, Keene is looking to take advantage of inflated prices for puts, so he is selling what is called a "bull put spread." In this structure, Keene is looking to sell a put just below where the IBB is trading and then buy an even lower strike put to protect himself in case the IBB tanks. In exchange for selling the puts, Keene is pocketing $350, but in order for him to keep all that money, he needs the IBB to stay above the strike of the put that he sold, or in this case, above $340.

With the money collected, Keene says he has found a way to make a high probability bet on a fast moving sector.

"I make money if the stock is flat, goes higher, or it can sell off about another $12 and I can still be profitable.

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