CallWriter’s Trade Management Calculator™ is a unique tool for
managing open covered call trades. It show you the immediate profit in closing
the position or the potential result of rolling the short calls down or up (and/or
out). Users assume that the TM calculator only gets stocks from U.S. exchanges,
but this is not the case.

Our TM calculator also gets stock prices from selected foreign exchanges.

Below is a partial list of exchanges that are supported by our calculator.
There are many, such as the Oslo exchange, that I have omitted for brevity’s
sake.

Simply enter the stock’s symbol followed by a period and the exchange’s abbreviation.
For example, for stock FMG traded on the Australian Stock Exchange, you
would enter the symbol as FMG.AX. The calculator generally will not present
non-U.S. options. However, if the options are traded on one of the supported
exchanges, enter the option symbol followed by the exchange’s suffix, and it
may indeed display the option’s price.

I posted about would-be drug maker Dendreon (DNDN) on April 9 and April 22 of this year, noting a strong price spike above $25 and how a CallWriter member creamed it writing naked calls. Premium was so high and the stock moving due to possibly favorable news coming on its Provenge drug in development. I speculated that the stock would not hold price and pointed DNDN out as a bad covered call play, but a good short, puts being too expensive. Well, the Provenge news was not good and DNDN ultimately gapped down to $8 on bad news and still is under $8 a month later.

It was bid on June 15th at $7.25 and offered at $8.50; ye gods, what a spread. It’s 2006 revenues wouldn’t throw a proper party for Donald Trump. What’s there to like? I don’t claim any special prescience in this case; my crystal ball is no better than yours. But DNDN is an unprofitable company whose future depends on a drug in development. For those who wonder why I avoid pharmaceuticals, look no further than DNDN. Even protective puts make such companies dicey for covered call plays.

When premium gets unusually high on a company (implying higher-than-normal volatility in the future) whose stock is not moving, it is because the market expects price movement to occur. And that expectation is based upon an event. If the company is a pharma, or worse, a small pharma, you had better know what that news is. Smokin’ high premium on a stock like DNDN is the rattler’s rattle.

DNDN was not a bad play, mind; only bad for covered calls and any long-stock play. Bearish positions won like crazy. This is the kind of stock the covered call writer must avoid at all costs.