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Option trade alert on Dendreon (NASDAQ:DNDN) bear put spread

By: Karla Yeh
Posted: 7/15/2010 4:45:00 PM
Referenced Stocks: DNDN;OTM

Biotechnology name Dendreon Corp. (NASDAQ: DNDN ) did not announce any news today to account for the decline in shares on the day, and at least one option investor boosted put volume but limited risk during afternoon trading to bet on downside during the next month.

At 12:42 p.m. EST, a few blocks totaling roughly 4,600 July 34-38 put spreads changed hands thanks to at least one investor who appears to have paid $1.30 per spread . The out-of-the-money ( OTM ) July 34 puts were home to current open interest of 390 contracts while the near-the-money July 38 puts were home to current open interest of 823 contracts, indicating the majority of this action was initiated to open. The lower-strike puts changed hands for 66 cents per contract, which was the bid price at the time of the trade, while the higher-strike puts crossed the tape for $1.96, or one cent higher than the ask price, when the volume crossed. This pricing action suggests the investor was willing to risk $1.30 per spread on a bet that DNDN shares will be trading lower than $36.70 at July options expiration in 29 days. If DNDN shares are trading at $34 or lower, the investor could make a maximum profit of $2.70 per spread (the difference between the strikes minus the premium paid). On the other hand, if the stock stays above the breakeven price, this bear put spread caps maximum loss at the premium paid, or $1.30 per contract.

It is possible that this investor tied the options action to a long stock position, but this article highlights just the put volume on the tape that calls for at least 11% of downside during the near term.

Shares of DNDN dropped by $1.09, or more than 2%, to $38.48 during afternoon trading. Analysts expect the company's earnings report around Aug. 10.