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Options Update: Dendreon Attracts Put-Selling Activity on Recent Rally

Put option volume spikes on Dendreon as shares rally above technical resistance

by Joseph Hargett (jhargett@sir-inc.com) 11/4/2008 1:36 PM

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With earnings looming just over the horizon, and broad-market buying strength gaining momentum on Wall Street, the shares of biopharmaceutical concern Dendreon (DNDN: sentiment, chart, options) have soared higher in recent weeks. The stock is up more than 27% from its October 27 low near $4 per share, and today's rally above long-term resistance at the 5 level may have finally pressured a bearish player or 2 out of the options market. But can the equity maintain this momentum, or will it cave once again to overhead technical resistance?

There are a couple of looming events to take note of before we dive into DNDN's options activity today. The first is the company's participation in the Rodman & Renshaw 10th Annual Healthcare Conference. While I don't expect much from this event, given that the company recently released preclinical data on anti-tumor activity from developmental drug D-3263, there is the potential for some minor details to arise from the conference.

Shortly thereafter, however, DNDN should be slated to release its third-quarter earnings report. Currently, Wall Street is expecting the company to post a loss of 22 cents per share, a penny narrower than last year's loss of 23 cents per share. Historically, DNDN has performed pretty well, besting analysts' expectations in 3 of the past 4 reporting periods by an average of 4.5%.

Officially, Dendreon has yet to officially set the date for its third-quarter earnings report, but this won't stop the Dendreonites from positioning themselves ahead of the event. In today's trading, more than 21,000 DNDN puts have crossed the tape, outpacing the stock's average daily put volume by a factor of 12 and placing the shares on today's Intraday Volume Explosion List. However, it was the heavy activity at the January 2009 5 put that caught my eye this afternoon.

The Anatomy of a Dendreon Put Position

The first thing I noticed about today's DNDN volume was that it was almost entirely consumed by 1 rather large block trade of 19,088 contracts - suggesting institutional activity. This block crossed the tape at 10:29 a.m. Eastern time at the bid price of $0.90, indicating that these contracts were most likely sold. With open interest at the January 2009 5 put vastly exceeding today's volume, this activity is most likely the closure of an existing position to limit losses, as a purchased put at this strike would now be out of the money.

On the other hand, I cannot completely rule out the possibility that this block was the initiation of a put-sell position. Considering that the 5 level has long been a support/resistance level for DNDN, a trader could have used today's push above this level as an entry point for just such a neutral-to-bullish trade. Such a speculative trade would breakdown as follows: The trader sells to open 19,088 DNDN January 2009 5 puts for a total credit of $1,717,920 -- ($0.90 * 100)*19,088 = $1,717,920. Remember that a put-sell trader keeps the premium received on the trade as long as the underlying shares remain above the sold strike through expiration, which, in this case, is January 16, 2009.

By entering this trade, the investor is indicating that he expects DNDN to hold above $5 per share for the next couple of months. The shares have pulled past potential technical resistance at the 5 level today, but let's see if the stock's technical or sentiment backdrops provide any additional drivers for this trade.

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Options Update: Dell Inc. Short Strangled Ahead of Earnings

(11/19/2009 2:15:00 PM)

After the close of trading tonight, Dell Inc. (DELL: sentiment, chart, options) is expected to report a third-quarter profit of 28 cents per share, down from earnings of 37 cents per share for the same quarter last year. Historically, the company has bested the consensus estimate in each of the prior four reporting periods, with an average upside surprise of 6.1%. Heading into the event, volume on both sides of the put/call coin has nearly quintupled Dell's daily average. Some 16,500 puts and 31,000 calls have changed hands so far today, with traders focusing most of their attention on the December 17 call and the December 15 put.

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Ahead of the open tomorrow, Target Corp. (TGT: sentiment, chart, options) is slated to release its quarterly earnings report. Currently, the Street is expecting a profit of 50 cents per share out of the retailing giant, down sharply from last year's profit of 79 cents per share for the same quarter. Historically, TGT has topped the consensus estimate twice, missed once, and matched once during the prior four reporting periods. However, following a pair of solid reports in the prior two periods, TGT has logged an average upside surprise of about 10% during the past year.

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Options Update: Short Straddling The Walt Disney Co. Post-Earnings

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Shares of The Walt Disney Company (DIS: sentiment, chart, options) have jumped more than 4% after the company reported better-than-expected fourth-quarter earnings. Earnings reports are not only capable of sparking large moves in a security, but they can also be responsible for lifting implied volatility heading into the event. Judging by DIS' options activity in today's trading, it appears that at least one trader is betting on a drop in implieds following the event.

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Despite a strong quarterly earnings report from Wal-Mart Stores Inc. (WMT) and Hewlett-Packard Co.'s (HPQ) buyout offer for 3Com Corp. (COMS), Wall Street appears poised for a negative start to the regular session of trading. At last check, U.S. stock futures on the Dow Jones Industrial Average (DJIA) were down 44 points at 10,215, or about 42 points below fair value. Futures on the S&P 500 Index (SPX) are about 5 points below fair value, and it would appear that the broad-market index is going to struggle with technical resistance in the 1,100 level once again. The SPX's inability to close above this key technical hurdle in yesterday's trading disappointed many technicians, which could be feeding this morning's sour mood.

With stocks losing favor ahead of the open, the U.S. Dollar Index is once again benefiting from a safe-haven bid, gaining 0.21% to 75.23 in pre-market activity. Meanwhile, the December gold futures contract has added $1.40 to $1,116.20 an ounce. Finally, crude oil for January delivery is down 56 cents, at $79.36 per barrel in electronic trading.

Wal-Mart Stores Inc. (WMT) reported that third-quarter earnings rose to $3.24 billion, or 84 cents per share, from $3.14 billion, or 80 cents per share, a year earlier. Sales rose to $99.4 billion from $98.3 billion. Analysts were expecting a profit of 81 cents per share on sales of $99.2 billion. Wal-Mart forecast fourth-quarter profit of $1.08 to $1.12 per share, and raised its full-year outlook to $3.57 to $3.61 per share. Wall Street is currently looking for earnings of $1.12 per share in the fourth quarter and $3.58 per share for the year.

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Options Update: General Electric Co. Bull and Bear Debit Spreads Abound

(11/9/2009 2:35:00 PM)

Options traders appear to be split down the middle when it comes to prospects for General Electric Co. (GE: sentiment, chart, options). For instance, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.00 indicates that put and call open interest is practically dead even among options with less than three months until expiration. Furthermore, GE's SOIR also ranks near the middle of its annual range, underscoring the relatively mixed view among options speculators.

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Options Update: Vertical Call Spread for NVIDIA Corp.

(11/6/2009 1:00:00 PM)

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(11/5/2009 1:30:00 PM)

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