Going Bonkers In Dendreon Put/Call Options (DNDN)
Dendreon Corporation (NASDAQ: DNDN) may have finally been vindicated after a two-year war with the FDA over whether or not PROVENGE should be approved or not in the fight against advanced prostate cancer. There is still the issue that the exact data is still unknown for its IMPACT trial for PROVENGE. But one thing is for sure, the game changed on Tuesday. There is still likely going to be a rather long FDA process.
Despite the notion that this traded about 65.4 million shares before the after-hours trading was cut off, there was more stock options trading than you can care to imagine. Literally, this was off the charts.
The oddest thing about all of this is that April’s PUT and CALL options expire on Friday. The formal data is not expected to be released until April 28. That means that we have a cluster-f-something on deck for everyone trading the April-2009 stock options expiration date. The options seem cheap when you look at them, but that is because the options expire long before the data is due. All that is guesswork as to the day 2, 3, and 4 reactions in share prices, short selling, short covering, speculating, options roll-dating, and on and on. No thank you.
So looking out to May’s expiration of May 15, 2009, all of a sudden there is nothing cheap about playing the options. Shares closed at $16.99 on Tuesday, so there is no natural straddle and no natural spread. You can get close, but this gets expensive beyond belief.
CALL$ $LAST VOL. Op.Int.
2.50 14.35 1,986 7,200
5.00 11.95 29,065 46,646
7.50 9.50 12,120 26,603
10.00 7.65 12,526 28,722
12.50 6.15 7,737 9,626
15.00 4.55 12,421 11,374
17.50 3.45 5,755 2,908
20.00 2.59 8,567 2,378
22.50 1.82 2,731 1,082
25.00 1.38 2,560 502
30.00 0.70 9,415 1,962
PUT$ $LAST VOL. Op.Int.
2.50 0.06 28,143 58,371
5.00 0.34 39,679 47,115
7.50 0.74 4,982 5,407
10.00 1.28 9,824 3,711
12.50 2.15 977 602
15.00 3.20 24,133 1,476
17.50 4.60 8,862 605
20.00 6.30 9,045 187
22.50 7.60 174 165
25.00 10.15 2,794 172
30.00 14.51 3,774 215
So here is our thought. A straight volatility trade or what a synthetic straddle of say being long the $15 PUTS and the $17.50 CALLS just costs too much. We freely admit that we chopped off the bid and ask prices, but that was because the true “Last” was almost always in between the two and these were so active today. It comes to $3.20 for the MAY $15 PUT and $3.45 for the MAY $17.50 CALL. In short, this stock would have to go well above $24.15 on the upside or would have to go well under $8.35 for this to be profitable on just the most common synthetic volatility trade. You can cut this down on the PUT if you play the $17.50 PUT, but then you have to do even better on the upside of the trade for it to have been worth your while.
We had over 100,00 contracts of the MAY CALLS and over 125,000 contracts of the MAY PUTS trade hands today. You never know how many of these were roll-over contracts to MAY from APRIL, but we saw over 72,000 of the APRIL CALLS and over 45,000 of the APRIL PUTS trade today.
It is probably no fair to just add all of these together and come up with a number of how many shares were bet on. But if you did do that and if you use the 100 shares per contract rule, then you would have seen a crazy fully leveraged option-to-stock conversion of some 342,000 (and then some for rounding down) contracts or another 34.2+ million shares.
Even if you go further out of the money to the $20 CALL and the $12.50 PUT you still have to get close to $25 or close to $8.00 for it to win. Sorry to use a Kobayashi Maru analogy, but it gets really hard to win here.
We have an options trader looking at this for us right now and will hopefully get a fair and honest set-up for a fair way to trade it. Of the four traders I spoke to on Tuesday, only one of them was willing to go into the options matrix to start making plays here.
Unfortunately, this is is becoming back to a situation where Dendreon is either junk or worth an infinite amount. If you want a rough estimate, about the ’safest’ notion is to be de-leveraged and go out as far on the calendar as you can. If you are a believer that the FDA won’t squash them again, then the JANUARY 2011 $25 CALL at $5.50 or the JANUARY 2011 $22.50 CALL at $6.15 may be the best bets. Unfortunately, those are ONLY VERY SPECULATIVE comments.
You need to decide which strategy works best for you if you are brave enough to play the options in this one. And with the volatility here, keep some Pepto-Bismol tabs and a Book of Common Prayer close by.
It is easy to be torn here. PROVENGE is for advanced prostate cancer patients. It is not a first line of defense. It is essentially and end-of-game treatment to prolong life. At this point it is nearly immaterial what the side effects are. For that matter, we’d love to see this drug approved. But then there is the quantitative and calculating side that tally’s up the possible costs of treatment for the same end-game of death. Having known several people with prostate cancer, there is a thought that this should be on the market regardless of whether life is extended in 17% or over 22% of trial patients. Unfortunately, there are many actuaries and fiscal government-insurance issues between the final result and today.
We are generally on the financial and investor side of the equation. There is a very real-life and very human side to this and you can find that at CareToLive.com. I am a privacy nut, so I generally do not want to show any direction as to whether or not this may end up being a personal issue in the medical and pharmacological war against cancer. One of my closest family members is in a life-threatening cancer treatment program. I would no advocate any system-wide treatments that have incredibly low results. But for the later-stage patients, a 20% chance for a longer life that still has some quality to it may be a good enough answer. There are unfortunately no ‘good’ cancers. And there are no good cures…. Not yet.
JON C. OGG
