The Bears Are Back

How we're trading the pullback.

🐻 How We’re Trading The Pullback

Stocks have come off their highs this week, and the bears are back at the door—at least for now.

Part of the strong performance of Portfolio Armor’s Top Names this year has come from ones that hit our top ten during last spring’s correction. The key then, as now, was to use tenors long enough to outlast the pullback. Our approach hasn’t changed: harvest implied volatility, define risk, and let time work in our favor.

Defining Risk In An Unforgiving Tape

When markets sell off hard, risk management matters most. The define risk part of our “Harvest IV, Define Risk” framework limits drawdowns by capping exposure on every trade. Even in a rough week like this, we know exactly what we can lose.

That’s the advantage of structured, risk-defined trades — they allow us to stay active, harvesting volatility and repositioning, without letting temporary drawdowns derail the broader strategy.

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Why Biotech’s Getting Hit Hard

The biotech sector has been punished disproportionately during this pullback. Some of that reflects the general risk-off tone, but regulatory uncertainty has made things worse, especially after this week’s uniQure (QURE 0.00%↑) episode.

Last month the stock spiked on results suggesting it had developed the first ever successful gene therapy for Huntington’s disease. This week it crashed after the FDA indicated the existing trial data may not suffice for a Biologics License Application.

Traders in the space, including several of the Multibaggers biotech accounts we track—investors who’ve built a following by repeatedly flagging early-stage names that later became multi-baggers—argued that it’s unfair for the FDA to first allow a study design and then signal that the data from it may not be sufficient for a Biologics License Application. Some even suggested that by disclosing the FDA’s change in stance early, QURE may have been trying to apply public pressure on the agency to maintain the original approval pathway.

We saw similar frustration in the Multibaggers community about Soleno Therapeutics (SLNO 0.00%↑), a rare-disease biotech we entered a bullish options trade on Tuesday ahead of earnings.

The company beat estimates on both the top and bottom lines and reported what many of those same biotech traders described as strong clinical data. Yet the stock still fell more than 20 percent after hours. Episodes like these highlight how unforgiving this market has become—and why we’re shifting our focus to post-earnings opportunities where expectations have already been reset.

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Adjusting Our Biotech Playbook

Given that backdrop, we’re not avoiding biotech altogether. We’re simply pausing new pre-earnings entries for now.

Instead, we’ll look for post-earnings opportunities among our beaten-down favorites, particularly when they deliver solid reports but the market still overreacts. In those cases, we can often harvest elevated implied volatility and enter with defined risk just as sentiment begins to reset.

Selectivity will be key. We’ll stay disciplined about structure and liquidity, but ready to act when the setup is right.

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Harvesting Implied Volatility Where It Still Pays

Outside of biotech, implied volatility remains elevated into many earnings events — and we can still harvest implied volatility efficiently using our defined-risk approach.

Digital Turbine (APPS 0.00%↑) is a good example. It was one of our Top Names in July, and we placed a bullish trade on it then, a risk-reversal going out to January.

After reporting earnings Tuesday after the close, it popped about 24% after hours. Not every trade will do that, but it shows that solid results in other sectors are still being rewarded.

While we’re more cautious around biotech, we’ll continue deploying in other industries, especially our current Top Names, which have tended to outperform after corrections. The current pullback gives us an opportunity to re-enter prior winners using our established playbook.

As it happened, Tuesday night’s top names included three stocks that have been repeat winners for us. We’ll look to open bullish trades on them again on Wednesday.

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Hedging Broader Market Risk

For readers concerned about overall portfolio exposure, Portfolio Armor’s website and iPhone app can automatically hedge individual holdings or broader market risk.

For a more comprehensive approach, our hedged portfolio method combines top-ranked names with optimal hedges into a single, fully risk-defined strategy. You can read more about it below.

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The Bottom Line

The bears may be knocking, but they don’t stay forever. By defining risk and harvesting volatility intelligently, we can withstand their visits—and position ourselves to profit when the bulls take back the house.