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Free Falling MannKind Corporation (MNKD) Entices Options Bears

Deep out-of-the-money MannKind Corporation put buyers may be seeking protection

by 3/31/2014 3:18 PM
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MannKind Corporation (NASDAQ:MNKD) has been in free-fall mode lately. After shedding more than 7% last Friday on Food and Drug Administration (FDA) concerns, the pharmaceutical stock is down another 16% this afternoon at $4.07, thanks to a bearish brokerage note from Piper Jaffray earlier. As such, MNKD has landed on the short-sale restricted list, and puts are running at a five-fold mark-up to their typical intraday pace as traders look elsewhere to place their bearish bets. Not surprisingly, the equity's 30-day at-the-money implied volatility (IV) hit an annual high today, and was last seen 5.9% higher at 315.1%.

Digging deeper, the session's most active option is the weekly 4/4 2.50-strike put, where north of 13,400 contracts -- including a block of 6,014 -- are on the tape. More than four-fifths have crossed at the ask price, suggesting the volume is buyer-driven. Also, IV at the strike has soared 234.7 percentage points higher, and volume more than doubles open interest, hinting at newly bought bearish bets on MNKD.

On the face of things, today's weekly put buyers are expecting MannKind shares to tumble south of $2.50 by options expiration this Friday afternoon. However, given the deep out-of-the-money nature of the contracts -- and the stock's still-respectable year-over-year gain of 20% -- it's possible that the puts are being initiated by shareholders to serve as short-term protection against a continued pullback, ahead of tomorrow's FDA-sponsored advisory panel for Afrezza. No matter the motive, the most the traders have at stake is the initial premium paid.

It's worth noting that today's preference for long puts over calls is business as usual in MannKind Corporation's (NASDAQ:MNKD) options pits. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day put/call volume ratio of 1.42, which is just 4 percentage points shy of a 52-week acme.


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