Stocks quoted in this article:
Yesterday, European Union (EU) regulators granted Dendreon Corporation (NASDAQ:DNDN) marketing authorization for its Provenge prostate cancer therapy throughout the EU, sending the shares 5% higher. The stock is continuing that trend today, up 3.5% to $3.24. Meanwhile, in the option pits, calls are handily outpacing puts, with a large portion of the action centering around the biotech firm's January 2014 4-strike call.
Contrary to what we saw last week, however, not all this activity is bullish. In fact, the vast majority of the 2,020 contracts traded at the aforementioned strike crossed in a 1,969-lot, at the bid price of $0.42 -- suggesting it was sold. What's more, information from the International Securities Exchange (ISE) indicates that the block was specifically written to open.
In other words, DNDN's big trader is actually neutral-to-bearish on the stock, and does not anticipate it reaching the strike prior to January options expiration. If the speculator's theory is correct, and the shares don't rally during the next four months, then he'll retain the entire premium collected -- that is, $0.42 per contract. On the other hand, should DNDN make the 23.5% move necessary for bringing it in the money, the call writer risks being assigned, and having to deliver the underlying shares at $4 each, no matter how high they're trading.
Historically speaking, Dendreon Corporation (NASDAQ:DNDN) hasn't stood above the strike price since an earnings-related bear gap in August sent the shares tumbling about 26% in a day. Delta on the option currently checks in at 0.43, or 43%, meaning its chances of moving in the money throughout its lifetime are slightly better than 2-in-5.
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