What's Really Behind the MannKind Corporation (MNKD) Call Buying?

Biotech MannKind Corporation (NASDAQ:MNKD) is folding like a house of cards, down 9.1% this afternoon at $1.54, and on the short-sale restricted list. Amid the drubbing, the stock's 30-day at-the-money implied volatility has rocketed 7.6% higher to 157.4% -- an annual high. While MNKD's options pits have been uneventful today, recent weeks have seen a flood of call traders springing into action.

Diving right in, during the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly 14 MNKD calls for every put. The resultant call/put volume ratio of 13.81 ranks just 2 percentage points from a 12-month peak, hinting at a healthier-than-usual appetite for bullish bets over bearish.

Along similar lines, MNKD's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.60. Not only does this indicate short-term open interest is tilted in the direction of calls over puts, the SOIR also rests in the bottom one-third of readings taken in the past year.

Considering the stock's laughable technicals, such upbeat sentiment seems strange. On a year-to-date basis, MNKD has lost roughly 70% of its value, and just yesterday it touched a record low of $1.49.

So what is happening? On the one hand, it's possible traders really do see MannKind Corporation (NASDAQ:MNKD) coming back from a months-long swoon. On the other, it may be that call buyers are actually short sellers in disguise. After all, over 41% of the stock's float is sold short -- representing four weeks' worth of trading, at typical volumes. In other words, short sellers may be purchasing calls to act as an upside hedge.