The perfect storm is definitely brewing at Dendreon (NASDAQ:DNDN). Dendreon traded at a high of $26.63 in September 2000 and reaching a low of $1.26 in July 2002.
Today the May 30 call options (which give you the right to buy Dendreon stock at $30 until May 19, 2007) are trading between $1.40 and $1.60. Four thousand forty (4,040) contracts were traded today. Each contract represents 100 underlying shares and sold at an average of $150 each.
That’s right; the value of those contracts was $606,000. This is where things get spicy.
On top of what was traded yesterday, there is already an open interest of 42,150 contracts. Some of those that traded today or they may have come from those open interests or from new positions. For the purposes of illustration, I will assume that half were new positions and half were sales from the open interest (I expect the open interest to be about 44,000 contracts tomorrow).
The 44,000 contracts at $150 of average traded price today amount to $6,600,000.
But here is the catch. May 30 calls are not the mostly traded or with the most open interest. There are strike prices ranging from $2.50 all the way up to $50.00 representing 15 different strike prices.
One thousand one hundred and eighteen (1,118) May 50 calls changed hands today at prices up to $25.00. That’s on top of 1,790 open contracts through Tuesday. Is someone afraid that the price might go over $50.00 by May 19th, or are they hoping it will go over $50.00?
All in all, there are over 507,000 contracts of open interest for May, and another 32,000 plus changed hands today. Again, assuming 50% new positions, that would leave us with 533,000 contracts which represent 53,300,000 shares just for the month of May.
On the put side (which gives you the right to sell Dendreon shares at various strike prices) we have approximately the same number of contracts. The value of all the open interest of call and put contracts in May alone amount to over four hundred million dollars ($400,000,000) at today’s trading prices.
What makes all of this even more significant? The stock closed today at $17.17 up $1.00.
The total market capitalization on the week of March 26th was barely four hundred million dollars ($400,000,000). As a matter of fact, on March 21st DNDN traded at a low of $3.57 making the entire value of DNDN at barely three hundred million dollars ($300,000,000.00).
We have traded over 18,500,000 shares today bringing the total to over 740,000,000 shares in the last 23 trading days!
Yes, a perfect storm is brewing!
In my next article, I will explore the impact of the short interest which is approaching 50% (actually over 100% of the shares available for trading).
Disclosure: Author is long DNDN
DNDN 1-yr chart