U.S. Markets closed

Why large bear is down on Dendreon

David Russell (david.russell@optionmonster.com)

One trader apparently thinks that Dendreon is a dead-money stock.

optionMONSTER's Depth Charge monitoring program detected the purchase of 7,500 May 4 puts for $0.21 and the sale of a matching number of May 5 calls for $0.22. Volume was more than twice the previous open interest at each strike, indicating new activity.

The resulting position is highly bearish, equivalent to shorting the once-mighty biotech stock. The trade cost nothing to open and will make money from the shares pushing lower, while a rally would cause the investor to lose money from the short calls. He or she may be using the strategy to protect an existing long position or to speculate on the bottom falling out. (See our Education section)

DNDN closed at $4.56 yesterday, down 0.76 percent. It had peaked over $50 in 2010 amid optimism about its Provenge cancer drug, but it's been dogged by weak sales in recent years and is down more than 50 percent in the last 12 months.

The company doesn't appear to have announced the date of its next earnings report, but last year's calendar suggests that it will occur in early May. If the results are bad and DNDN falls, yesterday's trade would profit.

Total option volume was more than 5 times its daily average for the session, according to the Depth Charge.

More From optionMONSTER