The Ups and Downs of Biotech

Many traders dream of the day they can close out their positions and realize that one big gain. You probably have heard stories about novice traders that build up their trading accounts from mere thousands into millions. Biotechnology is a sector where traders seek out these such huge profits. For smart traders, this sector can present an incredible area of opportunity, but for those who are not willing to do their homework, it can be a train wreck waiting to happen. In this article, we'll use real-life examples to illustrate why this sector can be so appealing, and what issues you should consider before putting your capital at risk.

The Big Win
There are few sectors in the market that see small single-product companies go from having tiny market capitalizations to having a worth over hundreds of millions practically overnight. The business of curing diseases can be a lucrative one, and investors will jump on the bandwagon for any stock that shows the promise of a big breakthrough. For example, as you can see in Figure 1, Novavax Inc. (NVAX) rose from a low of $0.74 in August 2005 to a high of $8.31 in March 2006. This is equal to an amazing 1,023% in seven short months. With gains like this, it is easy to see why so many are anxious to put money into this sector.