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Dendreon Corporation (DNDN) Bear Foresees Lower Lows

Yesterday's big put buyer thinks DNDN's 11-year low is a sign of things to come

by 10/23/2013 10:38 AM
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Option Brief: Dendreon Corporation (NASDAQ:DNDN) extended its year-to-date slide yesterday, shedding 3% to close at $2.33. Along the way, the shares touched an 11-year low of $2.31. This prompted a barrage of options trading activity, particularly on the put side, where the session's volume outpaced the daily average by nearly a six-fold margin.

Most active by a mile was DNDN's out-of-the-money December 1.50 put, where 11,642 contracts traded, 99% at the ask price. All but two of those contracts translated as open interest overnight, indicating significant buy-to-open action. Of course, the vast majority of the volume transpired during a 10,000-lot block trade.

By buying the puts to open, yesterday's trader anticipates the shares will slide from their current perch at $2.36 below $1.50 by back-month options expiration. If the stock refuses to cooperate, and DNDN is sitting north of the strike at the closing bell on Dec. 20, the put buyer will sacrifice 100% of his premium paid ($0.13 per contract). However, it appears the options were more expensive than usual, given the fact that implied volatility at this strike closed 14.8 percentage points higher yesterday, at 137.6%, compared to a two-month historical (realized) volatility of 49.5%.

Between now and December options expiration, Dendreon Corporation (NASDAQ:DNDN) is scheduled to make an appearance in the earnings confessional -- specifically, before the open on Tuesday, Nov. 12. Historically speaking, the biotechnology interest has missed its earnings-per-share estimate in five of the past eight quarters, resulting in an average daily and weekly loss of 16.9% and 19.0%, respectively. For the third quarter, Wall Street expects DNDN to report a loss of 42 cents per share.


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