Dendreon (DNDN)

This morning Cowen initiated DNDN with an Outperform rating and stated that "Dendreon shares could be 50-60% undervalued based on its Provenge opportunity.  Provenge is a drug that prolongs the lives of advanced prostate cancer patients.  The final response by FDA for Dendreon's amended Biologics License Application (BLA) is due on May 1.  Hence, the implied volatility is sharply elevated in May at 98, while Feb is at 47 and March at 56.  


At least four other industry leading analysts have Buy rating on the stock with price targets going $40 or higher.  Looking at the technicals, the daily chart clearly shows a nice basing pattern between $25 and $30 since mid Sep'09.  $25 support is also important considering that on Dec 10, 2009, Dendreon completed 15 million share offering at $24.50.  Unless, FDA completely drops the ball on DNDN, I don't see the stock going below $25.  


I like the following Butterfly spread:


- Buy to open May $30 calls
- Sell to open May $40 calls
- Buy to open May $50 calls


Note this is a normal 1-2-1 ratio butterfly spread, i.e for each $30 and $50 calls bought, two times $40 calls are sold.  As of this writing, the whole spread can be established for a net debit of $2.35.  The potential P&L and daily charts are attached.  


Good luck!