Why Biotech & Healthcare Are The Biggest Risks To The Market

Nic Chahine was recently a guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick.

Create Income With Options Spreads Author Nic Chahine said that the largest risk to the NASDAQ 100 is not Apple Inc. AAPL or any single stock, but the collective group of biotech and healthcare stocks. Year-to-date, the iShares NASDAQ Biotechnology Index IBB and Health Care SPDR (ETF) XLV have gained 16 and 4 percent, respectively.

Chahine said these two sectors have ran to all-time highs "at record speeds" because of M&A deals.

"So, I'm wondering how many of these deals were based on share price and how the new share price levels affects those deals," Chahine said. Specifically, he questioned whether any of the deals would fall through and what impact that may have on the market.

In short, Chahine argued that there was "a lot" to worry about in these two sectors. That doesn't mean investors should pull out, however. As an options trader, Chahine said he preferred during these times to give up a few dollars of upside potential by protecting the downside, just in case the pundits calling for 10 to 15 percent declines are right.

At one point this year, the NASDAQ Biotechnology Index gained more than 30 percent, while the Health Care SPDR was nearly 15 percent higher. Since those highs in mid-July, prices are down more than 10 percent.