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Wednesday, September 28, 2022


Bears Bombard Biopharm Firm MannKind, Again

Today’s tickers: MNKD, SKX, FXI, SBUX, VIX, ACOR, NFLX, AMR & UAUA

MNKD – Mannkind Corp. – Stop, hey, what’s that sound? Everybody look what’s going down…We reported bearish options activity on biopharmaceutical company, MannKind Corp., yesterday as investors shed call options and enacted pessimistic plays on the stock. Lo-and-behold, MannKind’s shares plummeted today, falling 20% at times during the trading session to an intraday low of $7.52. News that its inhaled insulin drug, Afresa, could encounter delays at the U.S. Food and Drug Administration incensed investor uncertainty regarding the fate of MNKD’s share price. Option implied volatility jumped 43.61% during the trading day from an intraday low of 116.96% up to the current reading of 167.97%. Frenzied bearish option traders populating the stock today are probably kicking themselves for not acting 24 hour earlier. One investor initiated a put spread today by purchasing 2,000 puts at the February 7.5 strike for an average premium of 1.79 apiece, spread against the sale of 2,000 puts at the lower February 5.0 strike for 64 cents premium each. The net cost of the transaction amounts to 1.15 per contract. Call selling is apparent at the February 10 strike where 1,300 calls sold for 1.21 each. Investors shed 1,200 calls at the higher February 12.5 strike to take in 73 cents premium per contract. Finally, a bearish risk reversal graced the May 2010 contract. It looks like one trader sold 1,250 calls at the May 10 strike for 2.15 apiece in order to partially finance the purchase of the same number of put options at the May 7.5 strike for 3.30 each. The net cost of the put options amounts to 1.15 per contract and yields profits to the downside beneath the breakeven point at $6.35. MNKD’s shares must fall at least 15.5% from today’s low of $7.52 before the investor responsible for the reversal play breaks even on the trade.

SKX – Sketchers USA, Inc. – Fashion footwear manufacturer, Sketchers, received a vote of confidence by one option trader today who initiated a bullish risk reversal in the February contract. The investor implemented the optimistic strategy despite the 0.5% decline in SKX shares to $28.60. It looks like the trader sold 1,800 in-the-money puts at the February 30 strike for 3.00 apiece in order to finance the purchase of 1,800 out-of-the-money calls at the same strike for 2.00 each. The investor receives a net credit of 1.00 per contract on the transaction. The short sale of puts implies that the trader is obliged to have shares of the underlying stock put to him for an effective share price of $29.00 in the event that the puts land in-the-money by expiration. The long call stance positions the investor to accrue profits – in excess of the one dollar credit – if the stock rallies above $30.00 in the next two months.

FXI – iShares FTSE/Xinhua China 25 ETF – Chinese equity prices measure by the Shanghai composite index slipped 2.3% overnight and it seems that investors are alone in missing out on the global rally. The irony here is that the role of the Chinese authorities has helped rejuvenate the global growth argument and this is helping investors elsewhere put faith in domestic measures enacted by their own governments. At the vanguard of Chinese measures is a boon in bank lending, which has seen some money flow heavily into property and stock markets. A warning today by Chinese central banker, Zhou Xiaochuan over the importance of reserve lending requirements as a policy tool sent a reminder to the markets that the government doesn’t want to inflate a speculative balloon. One option trader today bought a calendar put spread, which appears to take advantage of the recent downturn in fortunes of the FXI exchange traded fund. With its shares trading unchanged at $41.37 the investor appears to have bought 10,000 put options expiring in May and sold the same amount at the August contract. Both involve the same at-the-money $41.00 strike price and the additional premium received from the sale of puts at the August strike nets the investor a 1.25 premium. Assuming that the overall trend gets back on track in 2010 the investor would retain that credit. Should Chinese shares stumble the investor is protected in the near-term and could put a position to the put seller at expiration in May.

SBUX – Starbucks Corp. – Shares of the high-quality coffee company are up 2% to $23.60 as of 12:00 pm (EDT). The share price tapered off slightly since this morning when the stock reached a new 52-week high of $23.78. Some investors are positioning for continued bullish momentum in the price of the underlying by purchasing call options. Roughly 1,200 calls were picked up at the February 24 strike for an average premium of 1.16 per contract. Call-buyers stand ready to accumulate profits above the breakeven price of $25.16. Other traders scooped up downside protection in the form of 1,000 puts at the February 23 strike for 1.05 each. Perhaps put-buyers are long the stock and looking to protect the value of the underlying position in case shares decline through the effective breakeven price of $21.95 by expiration in February.

VIX – CBOE Vix index – The year end equity rally is prompting investors to lower their level of fear for next year’s market performance. It’s typical that thin markets create perhaps an illusion of optimism and when the bears have no fodder to get their claws into, they just go back into the woods and bide their time. The volatility index slipped convincingly to below a reading of 20 for the first time since August 2008. After a round of broker upgrades yesterday, the optimism sparked by the passage of healthcare reform, the latest spark of optimism is coming from the unusual angle of rising bond yields. A surge in yields accompanies a lack of investor demand for the safety of government bonds. U.S. yields have moved from 3.16% at the commencement of the Dubai World crisis to 3.75% today as investors jump ship from bonds to stocks. The economic outlook appears brighter and the final straw would be the removal of monetary policy. As ever markets are swift to discount such a move. In the vix options market today an investor appears to have bought between 20 and 25,000 put options in the expectation that volatility will stay lower before contracts expire in January. The premium paid today of 1.50 at the 22.5 strike implies a breakeven for the trader at a reading of 21 on the volatility index.

ACOR – Acorda Therapeutics, Inc. – Shares of the biopharmaceutical company rose 1% to $25.45 today, but contrarian option traders initiated bearish transaction on the stock. Investors effectively enacted bearish risk reversals in the February contract by selling call options to finance put purchases. We note that the following trades were not spread against one another. However, the combination of the transactions mimics the risk reversal strategy. Investors sold 2,500 calls at the February 30 strike for an average premium of 1.30 apiece. Around the same time, traders also purchased 2,500 puts at the February 22.5 strike for 2.05 each. Such positioning suggests that traders do not expect shares to rally. Rather, they anticipate profits to the downside as evidenced by the long put and short call stances on the stock. It is possible that the trades are the work of one bearish investor. In this case, the trader reduced the cost of buying the puts to a net 75 cents per contract by selling the call options. The investor is positioned to amass profits beneath the breakeven price of $21.30 through expiration in February.

NFLX – Netflix, Inc. – Shares of the provider of subscription-based DVD-rental-by-mail services are up 2% to $55.05. Investors traded call options on the stock right out of the gate this morning. Bullish traders are likely buying the majority of the 4,000 calls exchanged at the January 60 strike for an average premium of 50 cents apiece. Call buying and selling is evident at the now in-the-money January 55 strike where more than 2,800 contracts changed hands by 10:10 am (EDT). The increase in demand for options on NFLX today lifted option implied volatility on the stock 6.56% to 39.78%.

AMR – AMR Corp. – Two-way trading traffic in near-term AMR call options helped lift option implied volatility on the operator of American Airlines this morning. AMR’s shares are up 5.5% to $8.06 as of 10:15 am (EDT). Volatility increased 12.81% to 74.52% in early trading. Option traders exchanged more than 22,000 contracts on the stock, with the majority of interest focused on January 2010 contract call options. Nearly 12,000 calls changed hands at the now in-the-money January 7.5 strike for an average premium of 85 cents apiece. It looks like some investors are taking profits by selling into the rally.

UAUA – UAL Corp. – Call activity is also booming on Chicago-based UAL Corp., which operates United Airlines, on the current 10% rally in shares to $12.68. Investors traded just under 14,000 contracts on the stock by 10:20 am (EDT). The rise in demand for options, as well as greater uncertainty regarding future UAUA share price movements, pushed implied volatility on the stock 7.38% higher to the current reading of 80.59%.

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