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Puts in Demand at Dendreon

Posted on the 30 June 2011 by Phil's Stock World @philstockworld

Today’s tickers: DNDN, EW, IO & CCI

DNDN - Dendreon Corp. – The biotechnology company today announced the U.S. FDA approved its cancer immunotherapy manufacturing facility in Los Angeles. The approval allows the company to increase the availability of its prostate cancer treatment, Provenge. Shares in the biotechnology company are off their lows of the session, but are still down 0.90% on the day to stand at $40.14 as of 12:20 pm ET. Dendreon options are a-buzz with bearish activity today despite the approval of the Los Angeles facility. Calls and puts are active, particularly in the front month. Trading patterns in put options paint a pessimistic picture of Dendreon’s share price performance in the near-term, while trading in calls suggests investors hold mixed opinions. Volume in DNDN options in heaviest at the July $38 strike where more than 4,600 puts changed hands against open interest of 1,465 contracts. It looks like most of the put options were purchased for an average premium of $1.07 apiece. Put buyers at this strike profit if shares in Dendreon Corp. drop 8.0% to breach the average breakeven point on the downside at $36.93 at expiration next month. Bears purchased puts at the July $40 and $39 strikes, as well. Lighter volume in deep out-of-the-money puts expiring in July also appears to be largely driven by traders initiating bearish stances on the stock. Dendreon is scheduled to report second-quarter earnings on August 2 after the bell. Options implied volatility on the stock rose 5.3% to 48.09% in early afternoon trade.

EW - Edwards Lifesciences Corp. – Options activity on the world’s biggest maker of heart valves suggests shares in Edwards Lifesciences Corp. may be on track to appreciate in the next couple of months. The price of the underlying stock currently trades 0.80% higher on the day at $86.25 as of 11:25 am ET. Earlier in the week Medtronic, the world’s biggest maker of heart-rhythm devices, reportedly sued Edwards Lifesciences in 2 U.S. lawsuits, alleging the company infringed patents on a heart valve system. Court battles aside, the sale of put options on Edwards to partially finance the purchase of call options on the stock indicates some strategists see shares rising ahead of August expiration. It looks like some 1,100 puts were sold at the August $80 strike for an average premium of $2.73 each, and spread against the purchase of around the same number of August $90 strike calls at an average premium of $2.88 apiece. Average net premium paid to initiate the spread amounts to just $0.15 per contract. Bullish players employing the strategy profit in the event that EW’s shares climb 4.5% in the next 7 weeks to surpass the average breakeven price of $90.15 at expiration. Shares in the provider of technologies and products to treat advanced cardiovascular disease last traded above $90.15 back on March 10. The August contract calls and puts will have roughly 1 month remaining to expiration when Edwards reports second-quarter earnings on July 21 after the final bell.

IO - ION Geophysical Corp. – Call options on the provider of technology, products and services to the global energy industry are in demand this morning, perhaps as investors await the Houston, TX-based company’s second-quarter earnings report on August 3. ION Geophysical Corp.’s shares are up slightly by 0.10% to stand at $9.43 just before noon on the East Coast. As of last Friday IO’s shares were trading at their lowest since the end of January, having tumbled roughly 42.0% since the start of April to as low as $8.07. The stock rebounded somewhat this week, but call buyers appear to be gearing up for additional gains in the price of the underlying through August expiration. Investors exchanged more than 3,400 calls at the August $10 strike against previously existing open interest of 1,417 contracts. It looks like most of the calls were purchased for a premium of $0.50 a-pop. Call buyers make money if shares in ION Geophysical surge 11.3% over the current price of $9.43 to surpass the effective breakeven price of $10.50 at expiration in August. Signs of optimism spread to the November $12 strike where nearly 500 calls were picked up for an average premium of $0.54 per contract. The rise in demand for calls on the stock lifted IO’s overall reading of options implied volatility 2.6% this afternoon to 53.05%.

CCI - Crown Castle International Corp. – A sizable position initiated in Crown Castle International Corp. put options this morning indicates one strategist expects shares in the owner and operator of towers to pull back ahead of August expiration. Shares in CCI are currently up 0.60% to arrive at $40.97 as of 12:50 pm ET. The put player may be taking an outright bearish stance on the stock ahead of the company’s second-quarter earnings announcement on July 27. Alternatively, the puts could serve as a hedge against share price declines pre- or post-earnings should the investor hold a long position in the underlying. It looks like the trader purchased 4,000 puts at the August $39 strike for a premium of $0.85 a-pop. Profits are available to the investor should shares in CCI fall 6.9% from the current price of $40.97 to breach the effective breakeven point on the downside at $38.15 by August expiration. Crown Castle International’s shares last traded below $38.15 at the end of March.

Andrew Wilkinson
Senior Market Analyst

Caitlin Duffy
Equity Options Analyst



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