Novavax, Inc. (NASDAQ:NVAX) collapsed over 85% today on the back of a failed drug trial. While investors who were long got smoked, I made 25% by buying the stock. I bought at the open and sold soon after. Below I reveal the 3 factors I look for on every biotechnology collapse.

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1. When a biotech collapse occurs look for 80% or more of a drop. This happens once a month or so. The reason must be because of a failed drug. This happened with Novavax.

2. Immediately, look to at the balance sheet and find out how much cash the company has. To be interesting as a buy, the value of the company must drop at least 10% below cash. Per the balance sheet, the company has $366 million in cash. This means that the market cap of NVAX would have to drop to 10% below that ($329 millions). When I bought at $1.16 today, the market cap was $315 million, below that 10% discount threshold.

 3. Always buy the stock right before the open or at the open when small investors are panicking to the maximum. This generally gives you the best entry before cooler heads prevail. Then make sure you sell within the first hour of the day as soon as the market cap gets back above the cash on the balance sheet.

By Pro-Trader

Markus Teller