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MannKind Corporation (MNKD) Trader Bets on Extended Gains

LEAPS are pacing the day when it comes to MNKD options trading

by 6/4/2013 11:56 AM
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MannKind Corporation (NASDAQ:MNKD) has been flying high in 2013, tacking on over 220% to trade at $7.42. Earlier in today's session, the stock even touched a two-year high at $7.87. That technical momentum has one group of speculators eyeing longer-term gains for the biopharmaceutical name.

Options traders are targeting MannKind's out-of-the-money January 2014 9-strike calls. So far, 10,580 contracts have traded at the strike. Digging deeper, it's clear that most of the action results from a single block trade of 9,500 LEAPS that was exchanged not long after the opening bell sounded.

The headliner trade occurred at the ask price of $1.57, and sent implied volatility 2.4 percentage points higher, collectively suggesting the calls were bought to open. Therefore, this morning's big call buyer stands to gain in the event that the shares of MNKD surge to $10.57 (strike plus premium paid) by January expiration. But even if the necessary 42.5% lift isn't achieved, the most today's bettor can lose is his initial net debit.

What may come as a bit of a shock is the level of bearishness flowing toward MNKD. The stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 0.39, which ranks in the 96th percentile of annual readings. To put it differently, over the past two weeks, the number of puts bought to open relative to calls has been exceeded only 4% of the time over the past year.

As alluded to earlier, MannKind Corporation (NASDAQ:MNKD) is a technical standout -- and it's unclear when the momentum will slow down. Since early May, the equity has skyrocketed on support from its 10- and 20-day moving averages; and those trendlines have yet to be truly tested, so upwardly oriented is MNKD's recent trajectory.


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