It's Time to Trust Your Biotech Portfolio

Updated from 12:15 p.m. EDT

BOSTON -- I called a biotech analyst at one of New York's largest health care hedge funds last Friday to see how he dealt with what was a very volatile week of trading.

"I rigged a noose in my office, just in case," he said.

He was kidding, sort of.

What was rattling his nerves was not overall performance -- his fund was up for the week and is in the black for the year.

Instead, it's the tremendous intraday volatility in stock prices that seems to be the hallmark of this subprime mortgage meltdown market.

Exhibit A of the roller-coaster ride in biotech stocks last week was Myriad Genetics(MYGN Quote). At one point on Thursday, the stock of the genetics testing company was up 30% for the week on no apparent news.

After hitting an intraday high of $48.20 on Thursday, the stock sold off and closed Friday at $41.56, still good enough for a 10% gain over the five trading days.

The volatility hit short-sellers hard. About 20% of the Myriad's freely traded shares are sold short.

The overall market volatility is helping small- and mid-cap biotech stocks to outperform their big-cap brethren. This is causing some anxiety in hedge fund trading circles because the summer is usually a weak time for biotech stocks, in general, which means many trading-oriented funds are operating with a short bias toward small-cap stocks.