Option Activity for Monday, August 16, 2010

I hope that your trading is going well, as I know that members of S.O.M.E. are making the most of the market movements and their returns.

Deutsche Bank kicked off the week by weighing in on the biotech sector. The brokerage firm is generally pretty downbeat on the group, as evidenced by its lukewarm rating on Amgen, Inc. (AMGN) -- but Dendreon Corporation (DNDN) and Gilead Sciences, Inc. (GILD) each managed to score bullish notes from the analysts. However, only DNDN has been able to capitalize on its brokerage boost, with the shares shrugging off sector weakness to trek higher at midday.

Amgen, Inc. (AMGN)

Amgen, Inc. (AMGN) was hit with a new "hold" rating, with Deutsche Bank expressing concerns about "a lack of catalysts, declining base businesses, and remaining fear that further impact from U.S. healthcare reform and EU pricing cuts could erode sales." AMGN has dropped nearly 2% on the heels of this bearish note, continuing a recent retreat from resistance at its 200-day moving average. This trendline has pressured the shares lower since early May. However, call players seem blissfully unaware of the stock's struggles. AMGN's 10-day International Securities Exchange (ISE) call/put volume ratio of 1.58 rests in the 59th annual percentile, as traders have purchased bullish bets over bearish at a faster pace than usual in recent weeks.

Unfortunately, this preference for calls over puts could further hamper AMGN's progress on the charts. The most popular front-month strike is the August 55 call, with 7,184 contracts in residence. As expiration Friday draws closer, this call-heavy strike could exert options-related resistance on the stock.

Dendreon Corporation (DNDN)

Despite Deutsche Bank's generally gloomy outlook for the biotech sector, Dendreon Corporation (DNDN) earned a new "buy" rating from the brokerage firm. The analysts believe that Provenge, DNDN's prostate cancer treatment, could be a bullish driver for the shares going forward.

This positive note has propelled DNDN more than 1% higher today, with the stock maintaining its grip on support from its 50-day moving average. This trendline has provided key support and resistance for DNDN in the past, and is currently doing some heavy lifting as a technical floor for the shares.

If the stock can utilize this trendline support to extend its year-to-date uptrend of nearly 39%, an unwinding of short interest could spark additional gains. Roughly 8% of DNDN's float has been sold short, which translates to about three days' worth of pent-up buying pressure. A continued climb by the stock could force these bearish bettors to hit the exits, resulting in a fresh wave of buying pressure for the shares.

Gilead Sciences, Inc. (GILD)

Gilead Sciences, Inc. (GILD) also scored a bullish rating from Deutsche Bank, with the firm initiating coverage of GILD at "buy." The analysts chalked up their positive attitude to GILD's product pipeline, which it claims the market is currently undervaluing.

Indeed, skepticism reigns toward GILD. The stock's put/call open interest ratio (SOIR) of 0.74 rests in the 81st annual percentile, implying that short-term options players have been more bearishly aligned just 19% of the time during the past year.

In the same pessimistic vein, short interest on GILD swelled by 62.9% during the most recent reporting period as a fresh crop of bears placed their bets against the stock.

However, these bears appear pretty firmly entrenched. Despite the new "buy" rating from Deutsche Bank, GILD is currently sitting on a fractional loss. The shares are pinned beneath resistance at their 10-week moving average, which has been bested only once on a weekly closing basis since March. Until GILD can tackle this stubborn trendline ceiling, the stock might have a hard time winning over the skeptics.

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