The three-day rocketship ride in Mannkind Corporation (NASDAQ:MNKD) is fading fast in early morning trading.
But, c’mon, you didn’t think it could maintain such a blistering pace did you?
At this morning’s highs of $4.78 MNKD was up 31% in the past three trading sessions alone. Even the most committed MNKD stock enthusiast can’t be surprised at some profit-taking following such an awesome run.
And it’s not just the overbought status of the stock that is taking the wind out of Mannkind’s sails, it’s also the abundance of resistance looming overhead.
As shown in the accompanying chart the $5 zone acted as major support until it finally gave way last month, resulting in a quick freefall in the stock.
Given the principle of polarity this previous support level will more than likely act as resistance.
What’s more, MNKD is running into the declining 50-day moving average, which is a popular spot for selling pressure to mount in downtrending stocks.
While MNKD stock may continue its recovery in over the long haul, in the short run don’t be surprised if it pulls back or consolidates in the coming weeks.
Sell MNKD Covered Calls to Capitalize on the Rally
Shareholders should use the recent rally as an opportunity to sell covered calls. The premium received will provide some income along with downside protection to offset any type of giveback in the stock over the coming weeks.
Sell the Jul $5 call for 40 cents or better. This will obligate you to sell your stock at $5, but you’ll receive 40 cents for your troubles. Make sure to sell one call option for every 100 shares of stock you own.
Perhaps I don’t need to point this out, but 40 cents of premium for a $5 strike option is a hefty amount of payment received for the obligation to unload your stock.
In the event MNKD stock remains below $5.40, the covered call will deliver a superior return to stock ownership between now and July.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
