RunawayTrader

But if you want to play it safe and earn big bucks, here’s an idea

I’m not saying you shouldn’t risk any of your bucks on Dendreon and the forthcoming FDA decision. Au contraire, I am suggesting a little prudence would be in order.

Dendreon, in case you’ve been doing your stock musing from the basement cell of a convent, is the Seattle-based maker of Provenge, the prostate cancer immunological treatment that could well set the world on fire by this weekend —if the FDA issues a favorable verdict on this angst-ridden stock. Well, either way something is going to burn.

Me? For what few shares I own, it’s like sitting on the sidelines. I sold the majority of my shares this morning when the stock (for me) peaked at $41.91.

I am admittedly faint-hearted in these matters, after losing about 90% of my capital in one, silly binary trade like this one. Sheer stupidity. Never again.

And yet I’m seeing a lot of this “bet the farm” positioning on this stock. Somebody is going to make a lot of money—or lose a lot. But it won’t be me. This time, I’m playing it different.

Here’s my thinking. Since this is a binary trade (heads you win big, tails you lose even bigger) why make the big bet on the outcome? Why not get a handle on your greed and bet on the followup. It can be almost as profitable, but much less of a risk.

Let’s suppose that Provenge gets approval. The stock will most assuredly blast-off because it’s a cancer drug and that’s always big (volatile) news. Plus, there’s a sizable (13 million shares) short interest in this stock. But I’m thinking that it will jump from, say, $40 to slightly more than $50.

But, if it hits a snag, any snag, the stock will crater. Some writers are suggesting a drop of 50-55 percent. And from my perspective, I cannot afford to lose half of my trading capital (if I bet the farm).

So here’s my strategy: Regardless of whether the treatment is approved or hits a temporary snag, the share price will undoubtedly soar on the former and tank on the latter.

When the dust settles, that’s when I’ll buy. And with a certain amount of abandon, I might add. This is a much safer bet since DNDN has shown in its last two “decision-based” outings to soar early, fade late, and then offer not only a safer buying opportunity, but a lucrative one as well. How lucrative? Take a look.

On “decision day” April 13, 2009, DNDN closed at $7.01 and opened the following day at $21.40. That’s terrific if you bet long but thousands bet short and lost their collective patooties (look that up in your Funk & Wagnalls). But the stock faded steadily all day and closed at $16.99. Here’s the kicker: If you had bought at the close and held for a couple of weeks, you could have cashed in for a 61% profit.

Same deal back in 2007 only your profit would have been greater. The stock closed at $5.22 on decision day and opened the following morning at $17.92. Profit-takers again drove the price down, this time closing at 12-bucks. But, within 5 trading days, the price rose to $25, a better than 100% profit.

You can do what you will. I’m play it safe and placing a later bet. If DNDN fails to get approval, so much the better. I don’t lose anything. And I can trade intelligently based on the news. Doesn’t that make sense?

See you on the road.

Charlie the RT