Dendreon (DNDN) is off $1.38 to $4.80 after posting a hefty 61-cent per share loss, four cents worse than expected, and then getting hit with mutlipe analyst downgrades. In options action, one investor bought 10,000 Aug 6 – 7 strangles on the biotech for $1.36 and sold 10,000 Nov 4 – 7 strangles at 92 cents. It might roll (CLOSE) a position in the August strangle from 7/19 when 8,000 traded for $1.05. If so, they’re paying 44 cents (for the four-legged trade) to roll (OPEN) to November and possibly betting that the stock will now hold between $4 and $7 in the months ahead. Short strangles like this (selling the Nov 4 puts and Nov 7 calls) are popular strategies among some institutional players that attempt to profit from the fact that options are wasting assets. Changes in implied volatility can have an important impact on strangles as well. A short strangle benefits from falling IV.
About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.