Tuesday, December 28, 2010

MannKind (MNKD) - Bio-tech Vol Collapses on FDA Delay

MNKD is trading $8.19, up small but with IV30™ collapsing down 42.2% or 113.82 vol points. The LIVEVOL™ Pro Summary is below.

The news is simple. The FDA was supposed to come out with an actual ruling this expo, but then this news came out:
MannKind Corporation (Nasdaq: MNKD) today announced that it was informed
on December 27, 2010 by the U.S. Food & Drug Administration (FDA) that the agency will not be able to complete the review of the New Drug Application (NDA) for AFREZZA® (insulin human [rDNA origin]) Inhalation Powder by the action date of December 29, 2010. The FDA stated that it will require approximately four additional weeks to complete its review of the NDA.
Source: Business Wire

For long vol holders in Jan, ouch... a lot...

Yesterday the IV30™ actually closed up17.52 vol points (or nearly 7%). That snap is included below.  You can find this by going to the Charts Tab and clicking on the volume bar at the very bottom for the right day (12-27-2010).

Let's look at the Skew as of right now - just to get a feel for how the month to month vol comps look.

We can see now that Jan is well below March, which is well below Feb. The option market reflects a Feb decision now...

Finally, let's look to the Options Tabs from yesterday's close and then from today, respectively.

Jan Options
The Jan 7.5/9 strangle went from ~$3.75 to ~$1.05, or down 72%.
The Jan 5/11 strangle went from ~$1.95 to ~$0.40, or down 79%.
The Feb options are essentially unched.

The lesson here is pretty simple. Naked long options in a bio-tech risk not just that the news doesn't move the stock, but that the news doesn't surface at all...

And yes, it's slow today so my second story doesn't have any trades to analyze...

This is trade analysis, not a recommendation.

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