Wednesday, August 4, 2010

Dendreon (DNDN) - Bio-tech Option Trades on News

DNDN is trading $38.86, up 14.9% today and IV30™ down 17%. The LIVEVOL™ Pro Summary is below.

The news today:
Dendreon Corp. on Tuesday reported a wider second-quarter loss on higher costs but said sales of its prostate cancer treatment Provenge are rising rapidly and now total more than $5 million a month.

The Food and Drug Administration approved Provenge in late April, meaning the second quarter was the first period the drug was on the market. Dendreon said sales totaled $2.8 million during the quarter, including $340,000 in May and $2.5 million in June.

In July, Provenge sales rose to $5.2 million. Dendreon said it has received more than 500 prescriptions for the drug. The company is building up its manufacturing capacity and said it is on track to provide the treatment to about 2,000 patients in the first year after approval. The drug is ultimately expected to bring Dendreon more than $1 billion in revenue per year.

The Livevol Pro Options Tab is included (click to enlarge).

Note a few things:
1) The Aug weekly vol is down 43 points.
2) The Aug monthly vol is down 17 points.
3) The Aug weekly 40 strike calls are priced at ~80 vol.
4) The Aug monthly 38 strike calls are priced at ~56 vol.

Here's a trade idea for analysis. Basically, sell the elevated weekly vol and cover up using the monthly while staying long deltas on the news and NOT being short options net.

Trade Stats
Buy 1 Aug monthly 38 call for $2.32
Sell 1 Aug weekly 40 call @$0.50
Net debit is $1.82.

Best Case Scenario
DNDN goes to 40 and pins at weekly expo (this Friday). Then goes up after.

Worst Case Scenario
DNDN goes down huge; lose all $1.82.

Intermediate Scenario
DNDN goes up well past $40.

Note that if the stock goes up fast, the trade only has a $0.18 upside.

The point of the trade:
The goal here is to buy one option and sell two against it while never being naked short options. So, sell the 40 strike today, hope it expires worthless, and next week sell something else, maybe the 40 strike in the monthlies.

While this has a vol tint, this is also a slightly bullish bet which can't be ignored. This bet also wins to vol increases as it is long vega.

DNDN is crazy risky, so please be careful if you trade this name.

This is trade analysis, not a recommendation.

Legal Stuff:


  1. why you suggest different strikes, not 40 for both? Thanks!

  2. Wanted some bullish exposure as well... just a preference on my side.