MannKind Corp. (NASDAQ: MNKD) is one of the more controversial emerging biotech players out there, and the stock’s push and pull from traders has given it one of the biggest cult followings of 2010. Trading MannKind stock has generated the same sort of reaction for many traders that diabetics face in wild blood sugar levels. Interestingly enough, the situation has changed as of this morning.
The company had been plagued by FDA delays and concerns, and this morning MannKind announced the resubmission of its new drug application with the Food and Drug Administration. What is more important than the acceptance of this application is that the FDA set December 29, 2010 as the Prescription Drug User Fee Act (PDUFA) action date.
While the bias may not have changed yet, and while the bias beyond today is not going to be known for some time, this at least gives option traders the target dates for when to put their options trades on. The December 29 date puts the options expiration now at JAN-2011.
The JAN-2011 CALLS are active, but the $6.00 PUTS are the most active of all at 2,600 contracts with a prior open interest of only 251 contracts.
To show just how wide the expectations are, buying a combined volatility trade for January via the $6.00 PUTS and $7.50 CALLS now costs $2.20 for the call and $2.20 for the put. At $4.40 combined versus a $6.70 share price, buyers of volatility out to the actual FDA date would have to see shares rise above $11.70 or fall to under $1.60.
While there is movement in AUG-2010 and NOV-2010 speculative CALLS today, JAN-2011 is where the new pivotal action will be for the rest of 2010. Today’s news that the FDA has accepted the application and set a date is better than what some of the bears would have hoped for. Many of the bears seem to believe that AFREZZA does not work or is not ever going to be approved. Inhalable insulin has a history of disappointment despite the obvious win that would be there if safety and efficacy ever catch up.
For speculative options traders, MannKind just got too expensive to play with six months worth of time value in a highly speculative stock. At least you now know which options contracts to watch for volatility. For now, this is one to keep on your calendar and watch lists.
Much of today’s 9% gain is short-covering as there were 17,236,299 shares listed as the June 30 settlement date short interest at NASDAQ. With a market cap of $750+ million, you know the basics behind the risk-reward scenario here. This is a potential mega-blockbuster for the company if it can get FDA approval. The inherent problem is that inhalable insulin as a category of diabetes treatment has so far been a dud despite all of the promise and potential upside.
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