Dendreon Option Premiums Remain Astronomical (DNDN)

Dendreon (DNDN-NASDAQ) has only up to 4 full trading before that May 15 FDA review date.  The funny thing here is that the options have actually become more expensive since reporting on this last week.  The current $17.50 straddle would run $12.90 for the May expiration on the Put and Call strike prices. 

Even going way out on the strikes is far from a bargain: The May $25.00 Calls went out at $3.80 premium today; and the May $10.00 Puts went out at $2.10.  Neither of those are cheap at a $17.74 close for Dendreon today.  The funniest thing is that the time value portion of the premiums will not compress drastically each day ahead of the FDA event as more and more traders have little to no choice but to put on certain hedging transactions after the last move that Dendreon made on receipt of the panel backing for provenge.  If this was a normal option with no event risk it would theoretically lose up to 1/8 of the value each day from here, but the event risk going into next Wednesday will keep these premiums high until after the formal FDA decision.

There is still a ways to go before (5 trading days) this one is a known verdict.

Jon C. Ogg
May 8, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in any of the companies he covers.