A subset of institutional investors in biotechnology and biopharmaceuticals has moved beyond straightforward equity positions to incorporate options contracts as part of their portfolio strategy. Armistice Capital, which manages more than $7 billion and carries significant healthcare exposure, is among the funds that combine equity stakes with listed options to structure positions around anticipated clinical and regulatory catalysts.
Armistice’s disclosed holdings in Cytokinetics illustrate this approach. The fund holds approximately 1.02 million shares of Cytokinetics alongside approximately 2.7 million call option contracts, giving it leveraged exposure to the company’s clinical pipeline, including its lead cardiovascular drug candidate aficamten. Aficamten is being developed for hypertrophic cardiomyopathy, a genetic heart condition in which thickened heart muscle can impair cardiac function and limit exercise capacity. Key institutional holders in Cytokinetics include Vanguard Group, BlackRock, T. Rowe Price, Norges Bank, and AQR Capital Management, most of which hold only equity.
The use of options in biotech positions is not limited to Armistice Capital. Several hedge funds running event-driven and healthcare-focused strategies have adopted similar structures to gain asymmetric exposure to binary events such as FDA approvals, clinical trial data releases, and regulatory decisions. The practice allows funds to limit downside while retaining upside participation if a catalyst resolves favorably. Armistice reduced its equity position in Cytokinetics by approximately 22% in one quarter while maintaining its options position, a move that suggests active management of risk exposure relative to the company’s regulatory timeline.
For institutional investors tracking healthcare portfolios, the presence of options alongside equity can signal stronger directional conviction than a pure equity position, since options require ongoing maintenance and carry higher relative cost. Armistice Capital’s combination of equity and derivatives in select biotech positions places it among a smaller cohort of healthcare-focused institutional managers with more complex portfolio structures, alongside other active managers who use similar instruments to calibrate exposure ahead of defined catalyst events.