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What's Driving the Trend Toward Calls on MannKind?

Heavily shorted MNKD has become a favorite target of call buyers

by 5/24/2012 3:05:30 PM
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Call options are gaining popularity on MannKind Corporation (MNKD - 1.67), with traders on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) buying to open 2,292 of these traditionally bullish bets during the past five sessions. Meanwhile, over this same time frame, only 15 puts have been purchased on MNKD.

In fact, the stock has garnered a 10-day call/put volume ratio of 66 on the ISE, CBOE, and NASDAQ OMX PHLX (PHLX), which ranks higher than 92% of other such readings taken over the past year. This suggests that traders have purchased calls over puts at a faster pace only 8% of the time.

Further confirming this apparently optimistic skew toward MNKD is the 50-day call/put volume ratio of 45.31, in the 98th annual percentile. So, it seems safe to say that options players have rarely shown a greater appetite for calls over puts on the stock during the course of the past year.

Of course, with MNKD recently breaching support at the $2 level, it's not surprising to see a general preference toward calls over puts. Due to this low share price, there simply isn't a lot of potential reward involved in buying a put option.

It's also worth noting that short interest accounts for no less than 20.7% of the equity's float, or 12.7 times MNKD's average daily trading volume. In light of this data, it's quite possible that short sellers have been buying calls to limit their upside risk, rather than to bet bullishly on the shares.

On the charts, MNKD is down 60.3% over the past 52 weeks, and the shares have shed nearly 35% so far in 2012. As alluded to earlier, the stock recently broke below $2, which had previously served as key support. This area contained MNKD's lows in 2008 and 2009, and also provided a backstop for the shares back in April. Going forward, this level could switch roles to act as resistance.

Weekly Chart of MNKD since May 2011

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