Mixed Options Trading Ensues on Dendreon (DNDN) Disaster

DNDN – Dendreon Corp. – Investors stormed Dendreon Corp. options this morning with shares hemorrhaging uncontrollably during the first 90 minutes of trade. The stock dropped as much as 68.0% to land an intraday low of $11.34. Shares in the maker of prostate-cancer drug Provenge currently trade at $11.97, a 66.6% discount to Wednesday’s closing value of $35.84, as of 11:40 am ET. Traders purged their portfolios of Dendreon after the Seattle, WA-based company withdrew its 2011 sales estimate and said revenues for Provenge failed to meet forecasts. The nosedive in the price of the underlying drove options implied volatility on the stock up 128.2% to 122.01% during the first half of the session. Strategists populating DNDN options are taking varied stances on the company, and have exchange more than 63,000 contracts so far today. It looks like some players are raking in hefty profits on previously established bearish bets, while others are snapping up calls in the hopes that selling is overdone. Traders eyeing a near-term rebound in the price of the underlying purchased more than 600 calls at the August $17.5 strike for an average premium of $0.25 apiece. Longer-term optimists initiated the Jan. 2012 $15/$22.5 bull call spread roughly 1,000-times at an average net cost of $1.21 each. Call-spreaders may profit if Dendreon’s shares surge 56.3% over the current price of $11.97 to surpass the average breakeven point at $18.71 by January expiration. Plain vanilla call-buying at the November $18 and $19 strikes indicates like-minded strategists are hoping a comeback story is in the works for the stock. Meanwhile, open interest in the August $36 strike put suggests traders purchased around 1,350 contracts at that strike for an average premium of $1.62 each this week. Buyers of these puts now hold options trading at a premium of $23.75 a-pop. Finally, outright bears expecting shares to slide lower ahead of August expiration paid an average premium of $0.27 per contract for around 600 of the August $10 strike put options.

GOLD – Rangold Resources, Ltd. – Shares in Rangold Resources were up as much as 8.5% to $98.45 following the perfect storm of stronger-than-expected second-quarter results from the gold mining company and a swoon in investors’ appetite for risk. Gold prices jumped again leading to gains across the market for associated precious metals and miners. Traders expecting GOLD’s shares to continue to climb in the next couple of weeks picked up nearly 1,000 calls at the August $100 strike for an average premium of $1.66 each. Investors buying up calls at the highest available strike price in the front month stand prepared to profit should shares rally another 3.25% to exceed the average breakeven point at $101.66 by expiration day. Bullish sentiment on the stock spread to the September contract where traders shelled out premium to potentially secure the right to buy shares in Rangold for $100, $105 and $110 each. Implied volatility on the gold mining company rose 9.2% to 33.05% by 12:20 pm in New York.

RYL – Ryland Group, Inc. – The homebuilding company share’s may extend losses in the weeks ahead, according to options traders picking up puts in the September contract. Ryland’s shares are currently down 3.0% to arrive at a more than 2-year low of $13.49 just before 12:30 pm on the East Coast. It looks like investors exchanged more than 6,000 now in-the-money puts at the September $14 strike against previously existing open interest of 1,953 contracts. Much of the volume appears to have been generated by bearish players paying an average premium of $1.00 per option contract. Put buyers profit in the event that the homebuilding company’s shares decline another 3.6% from the current price of $13.49 to breach the average breakeven point on the downside at $13.00 at September expiration. Shares in Ryland Group lasts traded below $13.00 back in March 2009.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.