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How We Doubled Our Money When I Was Dead Wrong

By Dr. George Huang
Friday, April 17, 2009

On Tuesday, biotech company Dendreon (DNDN) reported positive data for the world's first-ever cancer vaccine.
 
It was huge news for scientists, doctors, patients... and traders. Dendreon's stock tripled in the first hour of trading. It ended the day up 130%. And that's after a 50% surge across the previous six trading sessions in anticipation of positive news.
 
Dendreon shareholders are no strangers to that kind of volatility...
 
In 2007, the stock shot up more than 500% after an independent advisory panel recommended approval of the vaccine, called Provenge, based on early clinical trial results.
 
But just weeks later, the FDA popped Dendreon's bubble. The agency rejected Provenge based on a lack of convincing data. Shares tumbled more than 80% from their peak. (And traders who followed our advice booked big gains from the volatility.)
 
After the rejection, Dendreon's stock staggered along for more than two years, as the company conducted additional clinical trials. Then, in the past few months, trading activity spiked as investors anticipated the release of new data.
 
Based on our previous experience, I was inclined to bet on the short side. I thought Provenge had less than a 30% shot at success.
 
But I knew if the results were positive, Dendreon's stock could triple. So I structured a trade to profit from the volatility, no matter which way the results went. My FDA Report readers put on a "long straddle," a kind of options trade.
 
The way we set it up, we made money if the stock plummeted and we made lots of money if the stock soared. The only way we were going to lose money is if nothing much happened at all – unlikely given Dendreon's history.
 
I was dead wrong about Provenge. But after the positive results came out, our trade was up more than 100%. We closed half of the position and we'll be riding the other half for more gains.
 
The good news for traders is that the Dendreon saga has another chapter that will unfold in the next two weeks... The company didn't release the full results for Provenge on Tuesday. It simply announced the data were "positive." Dendreon will present the final details at the upcoming American Urological Association meeting in Chicago on April 28.
 
If the results are as strong as the company claims, Dendreon will rocket to about $20 (it's currently trading around $17). But if the numbers are less than perfect, don't be surprised if Dendreon sells off to $12 or less.
 
The options are pricey... and it's almost impossible to predict which way the cards will fall. I'm definitely not saying you should buy the stock here. But if you're a volatility junkie, you can get your fix from Dendreon on the 28th.
 
Good investing,
 
George Huang




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Earnings today... BB&T, Citigroup, General Electric, Mattel
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1224.71 +0.3% +11.4%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.19 -0.6% +7.2%
Euro 1.34 +1.4% -11.0%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%