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VIDEODen of Iniquity Takes Down Dendreon?
Unexplained drop, rumors spark investigations.
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Just when the markets are trying to regain the public's trust -- on which they're dependent to provide capital to fuel growth and pay ancillary fees to those involved in the transactions -- the last thing they needed was a day like Dendreon (DNDN) experienced on Tuesday.
Granted - playing in the biotech, especially pending drug approvals, can be a high risk/high reward proposition. But yesterday’s action raises eyebrows among even the most jaded shooters.
It’s acceptable, if not somewhat expected, that the stock spiked and more than doubled 2 weeks ago on news of the initial positive results regarding the efficacy of its cancer drug, Provenge. But yesterday saw more than a 50% decline to $11 immediately preceding the FDA’s equally positive report. The Nasdaq halted trading, but the damage had been done. The exchange said it will investigate potentially erroneous trades that may have spurred the selloff, but the trades would stand.
Trading resumed after hours, and the shares have rocketed up over 100% higher to $25.75 - topping prices they'd been at before the mysterious plunge. Unless something can be proved, those trades will stand - meaning many people probably got caught and lost a lot of money. And of course, it means that some people stood to gain a lot of money from the wild price swing.
Options Den of Iniquity?
Overall option activity was about 10 times the daily average, but this is unusual on the day that traders are awaiting an important decision. There was a small increase during the 20-minute period prior to the price plunge, but again, it was nothing that stood out as odd, given the background. Most of the transactions were small lots of 5 to 15 contracts and occurred on both sides (that is, puts and calls) and on both the bids and offers - meaning there were both buyers and sellers.
So at the moment, it doesn't appear anything nefarious occurred that was tied to the option market.
Still, anytime an unexplainable price move of such magnitude occurs, the exchanges -- including all option exchanges and the Option Clearing Corp. (OCC) -- will investigate and review trading activity. The process can be exhaustive; exchanges and the OCC will also take into consideration for review, any activity brought to their attention by a third party (such as you, or other investors), that's deemed unusual or suspicious. No exchange will reveal its exact definition of "unusual activity," nor confirm or deny what reviews currently are being conducted. But there are very few instances of reviews turning into formal investigations, and even fewer cases of an investigation leading to an indictment, let alone a conviction or sanctioning of punishment. Unless people such as executives, key employees or their relations, etc., with clear access to inside information are so arrogant (or naive) as to place the trades in question in an account that can be traced back to the guilty party, it's very difficult to prove illegality associated with an options trade.Twitter: @Minyanville/minyanville-markets-2
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