Shares of MannKind Corporation (NASDAQ:MNKD) have been trending upward since earlier this month when buyout rumors were circulating. Now options contracts for the Aug. 8 expiration on MannKind have opened up. Writing on NASDAQ, Stock Options Channel notes a few contracts “of particular interest.”
Interesting put contract for MannKind
Using their proprietary YieldBoost formula, they identified the put contract with the $8.50 strike price as a possible opportunity for investors to gain. That contract’s bid is 89 cents. The firm’s strategists suggest that investors could sell-to-open the contract, which means they commit to buy MannKind Corporation at $8.50. They also collect the premium, which means the cost basis for those shares is $7.61 before broker commissions. The firm says for investors who are already considering buying MannKind, this could be an attractive option compared to paying more than $10.50 per share right now.
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They note that the $8.50 strike price is about a 19% discount to the stock’s current trading price. Of course there’s always the chance that the contract would expire worthless. Strategists say their analytical data puts the odds of that happening at 75%. If the contract expires worthless, then the premium would be a 10.47% return on the investor’s cash commitment or 88.88% annualized.
Interesting call contract for MannKind
The firm suggests that the $11 strike price on the call side of MannKind is also interest. Its current bid is $1.14. Strategists say that if investors buy the company’s stock at about $10.50 per share and then sell-to-open the call contract as a covered call, they’re selling the stock at $11 a share. Since the call seller also gets the premium, the total return, excluding dividends, would be 15.6% if the stock is called away at the Aug. 8 expiration.
However, they say that there’s still plenty of upside that might be left on the table if shares of MannKind “really soar.” This is why they suggest examining the company’s 12-month trading history and business fundamentals before making any investment decision.
Since the $11 strike price is about a 5% premium to MannKind’s current trading price, there’s always the chance that the contract would just expire worthless. If that happens, the investor would keep their stock as well as the premium they collected. The firm sees a 46% chance of that happening.