Commit To Buy Dendreon At $2, Earn 26.5%

Investors eyeing a purchase of Dendreon Corp ( DNDN) shares, but tentative about paying the going market price of $3.92/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the January 2015 put at the $2 strike, which has a bid at the time of this writing of 53 cents. Collecting that bid as the premium represents a 26.5% return against the $2 commitment, or a 16% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

Top YieldBoost Puts of the S&P 500 »

Selling a put does not give an investor access to DNDN's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. And the person on the other side of the contract would only benefit from exercising at the $2 strike if doing so produced a better outcome than selling at the going market price. ( Do options carry counterparty risk? This and six other common options myths debunked). So unless Dendreon Corp sees its shares fall 49% and the contract is exercised (resulting in a cost basis of $1.47 per share before broker commissions, subtracting the 53 cents from $2), the only upside to the put seller is from collecting that premium for the 16% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Dendreon Corp, and highlighting in green where the $2 strike is located relative to that history:

If you liked this article you might like

Biotech-Twitter 2014: A Look Back at the Biotech Year Through the Twitter Lens

Where Are They Now? A Look Back at the Best & Worst Biotech CEOs

Nominees for Absolute Worst Biotechnology CEOs of 2014 Are ...

Using Re-Engineered Immune Cells to Kill Leukemia Induces Lasting Remissions

Stock Market Today: S&P 500 Eyes Strong Finish for 2014; Alibaba Spikes