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MannKind Corporation (MNKD) Traders Eye Another Bullish Gap

The FDA is scheduled to review MNKD's Afrezza on July 15

by 4/22/2014 10:39 AM
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Put players have been active in MannKind Corporation's (NASDAQ:MNKD) options pits in recent months, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the equity's 50-day put/call volume ratio on these exchanges stands at 0.86 -- in the 95th percentile of its annual range. In other words, puts have been bought to open over calls with more rapidity just 5% of the time in the past year.

In today's session, though, it's calls that are garnering the majority of attention, outpacing puts by a margin of nearly 10-to-1. The majority of this early call volume has centered on the August 7 strike, where 4,459 contracts -- made up mostly of three large, multi-exchange sweeps -- have changed hands. Almost all of this activity has occurred on the ask side and implied volatility is up 3.6 percentage points, hinting at buy-to-open activity. Delta for the call is docked at 0.58, suggesting a 58% chance the position will be in the money at the close on Friday, August 15 -- when the options expire.

From its current perch at $6.54, MNKD needs to rise about 7% in order for the calls to move into the money. Volatile moves are not out of the question for MannKind, which is up roughly 26% year-to-date. This time frame includes a 74% single-session jump after a Food and Drug Administration (FDA) advisory panel voted to approve the company's insulin inhaler Afrezza, as well as an 8% drop after the FDA delayed the review date.

The new review date of July 15 falls within the lifetime of the aforementioned calls, leading to speculation that today's traders may be preparing for another bullish gap. Although, with more than 28% of MannKind Corporation's (NASDAQ:MNKD) float sold short, a portion of the activity at the out-of-the-money August 7 call could be at the hands of short sellers hedging their bearish bets against such a move higher.


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