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Summary This discussion, not a conventional review of biotech development pipeline conditions, is a study of how prices for the ETF are evaluated by market pros and the market’s subsequent reactions. Market-makers [MMs], regularly called on to negotiate volume (block trade) transactions in BIB have a special insight advantage – knowing trends of buy-side “order flow.” Why buy? or why sell? often is far less important to resulting price trends than “By how much, and how long it is likely to persist.” The MMs reveal their conclusions by the way they protect themselves and their at-risk capital commitments – in hedging. Behavioral analysis lets us know. How has the subject security been behaving? The ProShares Ultra Nasdaq Biotechnology ETF (NASDAQ: BIB ) is an issue with about 2 ½ years of markets transaction history, just under the three-year minimum we like to have for historical research and behavioral analysis. But it turns out to be an active enough subject to provide a good deal of perspective, in a dynamically competitive arena of intense and continuing interest to big-money investment organizations. Figure 1 shows how buy-side transaction orders have been prompting MM’s conclusions about likely coming price ranges day by day over the past 6 months. Figure 2 extends that same analysis to the past 2 years by means of extracting daily forecasts on a once a week basis. Figure 1 (used with permission) Price ranges indicated by vertical lines in these pictures are forward-looking forecasts of the likely extremes for BIB during the life of the derivatives contracts used to hedge MM capital put at risk in the process. The heavy dot in each vertical marks the closing price of the day of the forecast, and separates the range into upside and downside segments. The current day’s Range Index [RI] of 14 measures the percentage of the whole forecast range that is below that market trade. It defines the historic sample of 24 prior forecasts of similar upside-to-downside proportions used to evaluate the present-day forecast. The distribution of RIs available during the past 5 years (only 627 here) is shown in the lower thumb-nail picture. Quality of prior forecasts is indicated by only one of the 24 priors failing to recover from the -4.8% worst-case price drawdowns to earn a gain under the portfolio management discipline standard regularly used to compare alternative investment results. The other 23 (96% of the 24) combined with the loser to produce an average gain of +16.4% in an average holding period of 5 weeks (25 market days). That relatively short holding period contributed to the CAGR of +356%, the magnet of our wealth-building interest. Figure 2 (used with permission) Figure 2’s expanded time dimension provides a sense of its longer experience and how the values seen now relate to the past. Another comparative dimension is how BIB now relates to other investment alternatives. Figure 3 lists other Biotech-focused ETFs and provides perspectives on their size, market liquidity, and year-to-date price behaviors. Figure 3 (click to enlarge) Included in this table are the Market-proxy ETF, the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) and an inverse ETF, the ProShares UltraShort Nasdaq Biotechnology ETF (NASDAQ: BIS ) . BIS is structured to move in price 2x the opposite direction of its underlying index, while BIB holds mainly derivative instruments that leverage its price moves positively, to 2x the daily action of that same index. The index in question is the NASDAQ Biotech Index which is directly tracked by the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB ). Its holdings are shown in Figure 4, strictly for perspective. Figure 4 An important aspect of any investment comparison is the trade-off between risk and reward. Figures 1 and 2 provide the data for BIB in side-by-side amounts of +13.3% and -2.9% in the rows of data contained in each. A visual comparison of those dimensions can be made from the map of Figure 5. Figure 5 (used with permission) The green % Upside Reward Scale at bottom of the map is quite understandable. But the red vertical scale of % Price downside may raise confusion between the downside portion of the forecasts and the worst-case price drawdowns of prior forecast experiences. Our experience is that the downside segment of the current-day forecasts is often exceeded by price drawdown experiences of prior like forecasts, and in turn, the current forecasts add to the priors. Besides it is not the forecasts that lead to capital losses (risk), but the experience of seeing investment prices descend below their entry cost prices, and staying there or getting worse, to the point where the investor throws in the towel and locks in a loss. When by having the fortitude to ride the stress out, he/she might likely see the position recover to a profit situation. So we use experiences rather than forecasts on the risk side of the equation. In Figure 5, BIB in position [3] clearly dominates most of the alternatives with a better trade-off. That adds to its quality advantage of a proven high-payoff history. BIS up in [6] is at the disadvantage of its “short” structure in a group where the current outlook is for higher stock prices. Conclusion: BIB currently presents a reasonably credible, albeit shorter, history of substantial rates of gain from earlier pro forecasts like that seen today. Investors should add to their own due diligence on the ETF’s competitive and profitability due diligence a hearty encouragement on the price-prospects front from market professionals.