MannKind (NYSE: MNKD - option chain) stock is trading lower today after the company said it will be unable to strike a partnership deal for its inhaled insulin product, Afresa, by the end of the year. The delay is due to a lag in obtaining FDA approval for Afresa, which may not come until January 2010. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MNKD.This morning, MNKD opened at $8.03. So far today the stock has hit a high of $8.03 and a low of $6.52. As of 12:55, MNKD is trading at $6.77, down $2.44 (-26.5%). The chart for MNKD looks bullish.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $12.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in three and a half months as long as MNKD is below $12.50 at January expiration. MannKind would have to rise by more than 84% before we would start to lose money. Learn more about this type of trade here.
TLB hasn't been above $12.30 at all in the past year and shown resistance around $10.50 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MNKD.
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