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Trader positions for Dendreon downside

Dendreon is trying to climb today, but one investor is proceeding with caution.

optionMONSTER's Depth Charge tracking system detected the purchase of about 5,300 January 6 puts for $0.23 and the sale of an equal number of January 9 calls for $0.25, resulting in a credit of $0.02. Volume was above open interest in both strikes.

The trader probably owns shares in the drug company and is using the options to hedge the long position. It locks in a minimum exit price of $6.02 and a maximum sale price of $9.02. That gives them protection against a total collapse but also limits the amount of money they can make in the event of a rally. (See our Education section)

DNDN is up 3.91 percent to $7.70 this morning and has lost more than three-quarters of its value this year. The last big drop occurred on Nov. 2 amid a weak sales outlook for its Provenge cancer drug, which followed a similarly bad report in August. (See researchLAB for more)

The $9 level has been the top of the recent trading range, which could be the reason that today's trader is targeting that price to the upside. The strategy could also be an outright bearish bet not linked to stock, in which case it would make money below $6 and lose money above $9.

Overall option volume is twice the average amount so far today, according to the Depth Charge.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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