Smart Money on Dendreon Corp?

Yesterday morning I noted the curious call buys on Dendreon Corp (DNDN). My colleague Elizabeth Harrow then followed-up with this post that discussed how option activity continued to be heavy. It looks like we have the reason for all the buzz.

The company published this new release this morning that says "the pivotal Phase 3 IMPACT study of PROVENGEŽ (sipuleucel-T) in men with advanced prostate cancer met its primary endpoint of improving overall survival compared to a placebo control." My quote system shows the stock is bid up over 200% to 22.00 in pre-open activity. As the weekly chart below shows, that would put the equity back to levels last seen in early 2007.

As Elizabeth noted, the stock is heavily shorted. According to data collected by our Quantified Analysis group, 20% of the stock's float is now sold short. Some of the call activity could have been to hedge some of these short positions. Anyone not hedged though is most likely looking at a sizable loss here. Meanwhile, any of those calls that were for speculation are going to payoff big time. Either way, it shows an interesting use for options.

Chart Courtesy of Thomson Reuters

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