DNDN tripled in 1 month, high IV; how to play?

R

rselitetrader

DNDN has risen from $5 to $23 in a week; IV is record high: IV today, 4/9/2007 is 201%, and 30 HV is more than 300%.

I am uncertain where to price or the IV will go. Fundamental: potential new drug for prostate cancer. What is a high probability strategy in this situation? Any thoughts?
 
Quote from showyouwang:

I'm considering selling those OTM April Calls... if the IV dies down it would be money
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My concern is, "every action has an equal and opposite reaction." I am not sure if DNDN will come down just as fast and hard. I got burned on XNL when Bush made a speech on EtOH. Look at the chart of XNL maybe 2 months back.
 
Yeah, it's true DNDN could go up further like the XNL case you brought up. I wouldn't trade anything related to DNDN simply because I don't have the experience or setups needed to capitalize on it. If you're unsure, should always stay out of the trade.

I'll tell you what I would do though if I were to trade this. It's too late to go long, but you don't want to short because it's hard to tell how much higher this thing can go. But volatility is high as hell, so selling premium can be done. DNDN is looking to retest the high made in the end of 2000 at around $25. Look for some resistance around that area. Those April 30 calls are going for a fat premium of 75 cents with only 8 days left till expiration. Could possibly break the highs and go nuts... but if you think about it, it has to go up around 7-8 points in 8 days to lose money on selling those calls.
 
Quote from rselitetrader:

DNDN has risen from $5 to $23 in a week; IV is record high: IV today, 4/9/2007 is 201%, and 30 HV is more than 300%.

I am uncertain where to price or the IV will go. Fundamental: potential new drug for prostate cancer. What is a high probability strategy in this situation? Any thoughts?
More...
When the IV is this high, there's usually some news waiting in the wings. With DNDN, it's a question of whether the the FDA is going to follow the advice of the advisory panel's recommendation of Provenge - which resulted in the 20 point rise. The problem is that Provenge failed to achieve the goals of the clinical trials, namely slowing the spread of prostate cancer. But it did prolong the lifespans of those taking it. So where it's going is still a big question mark.

Once again, DNDN is likely to have a wild (directional) ride once the FDA rules. One could argue for a straddle/strangle bet to capitalize on a big move but there's always the possibility that there could be a conditional approval with strings attached. Then, the strangle/strad will get killed from the IV collapse if there' no gigundo move.

There is no high probability option strategy in this situation.


My 2 cents is that the safest approach is to trying to go along for the ride on the day that the news breaks. Trade the stock. If it's thumbs down and it's not borrowable, short the deep ITM calls.
 
rselitetrader


DNDN has risen from $5 to $23 in a week; IV is record high: IV today, 4/9/2007 is 201%, and 30 HV is more than 300%.

I am uncertain where to price or the IV will go. Fundamental: potential new drug for prostate cancer. What is a high probability strategy in this situation? Any thoughts?

#################################
You would responsible for your decision !

1.Better not to play...

2. Only to opinion exchange's ! Not suitable for each person !

a. Sell short shares intraday -try to catch 5-10%(* margin)

b. try to catch direction with buy with high intrinsic value
option(deep in the money) and sell with "0" intrinsic value

suspect to be in short direction

Attention -author can be correctly only in 30-36% of case's !
Only for opinion exchange !
Only on you request! -Any thoughts?

Primary author opinion- forget this bet ! (News was dispersed
long time before ) .All near money options to time
with low leverage and high time value .


Your respectfully
 
Vols on DNDN are not at NHs. ATM implieds were hitting 250s before the panel approval. They're 170 on the 25 and 30 strikes.
 
Yeah, I made out well with the first DNDN "fun" that Friday --- but I'm very hesitant about getting back into the game right now. There's a ton of volitility and SO much conflicting opinion on the pos.....and the Yahoo board is an absolute cesspool as well, but kind of amusing to skim when trying to fight insomnia. :) Besides IMO, it's going to be a roller-coaster between now and FDA Decision Day.

Part of me is thinking of just grabbing a few hundred shares with protective puts to guard 'em through May because of the high premium on the near-term options. If the decision is positive, I'll keep the shares because it'd be a company worth holding on future prospects.....but at least then there's a known decision point to figure out how to plan my next forray into DNDN options, because right now it's a crapshoot with (IMHO) slightly-better than 50-50 odds of approval.

Then there's another part of me that's mulling buying a few JAN 08 LEAPS, but they're not immune from the major volatility with this stock, either. Perhaps weathering it a bit better, but still.

...and then there's the ultra-conservative side of me that's already looking for the next best investment and would be happy to jump off the DNDN ride now despite the emotional prospects of it being approved and possibly getting a nice profit. *shrugs* I got a tenfold return on my 'meager' speculative investment and am thankful for that!
 
In the worst case... DNDN will get an approval letter that put DNDN around $6.

On May 15, the 7.5 puts would worth $1.5, let assign 40% possibility for that

May 7.5 put should worth 0.6 now.

If that does happen, you can write covered calls for rest of the year. There is 0%it will be rejected, so you have a floor.

You earn money because you provide a service for the good cause.
 
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