News

MannKind Corporation was notified by the Food and Drug Administration on December 27th that it would need about four more weeks to issue a decision on the company's application to market AFREZZA. According to Alfred Mann, the biotech concern's founder and chief executive who has invested some $1 billion of his own money in the development of the inhaled insulin product, the main reason for the delay was the FDA's two-week-long audit of the site where a critical bioequivalence study was conducted. The FDA's stated timeline indicates that the decision will most likely be announced either this week or next week.

As the day of reckoning approaches, investors and speculators alike need to prepare for myriad possibilities. An investor with a long position in the stock and a January put to cover that position, for example, may have to buy a February put to extend that protection beyond this coming Friday. A speculator, on the other hand, who has a January call option that is in the money, has to consider whether to simply close out the position, roll out to another month, or perhaps exercise the call and buy a put for insurance. It’s impossible to discuss all the different scenarios, but the following should be part of the deliberation process.

1.  In addition to a favorable decision by the FDA, MannKind shares could be lifted by an announcement of a marketing agreement with a large pharmaceutical company. So, holding a bullish position (stock or calls) beyond the regulator's (favorable) ruling could prove worthwhile.

2.  The timeline suggests there is a real possibility that a decision could be announced on Friday, January 21^st. This could trigger a halt in the trading of MannKind stock, which would complicate the implementation of strategies that involve options. As such, it may be prudent to take action on Thursday.

3.  Equity options technically expire on the Saturday after the third Friday of each month. For all intents and purposes, though, they can’t be traded after 4 P.M. (Eastern daylight time) on that third Friday.

4.  Although the options can’t be traded, subscribers should be aware that they can instruct their brokers to exercise their options up to 5 P.M. Friday evening. This includes options that may be out-of-the-money at the market’s close. So, if the stock doesn’t trade on Friday or there are favorable developments after 4 P.M. on Friday, and the holder of January calls expects the stock to open above the strike price at the resumption of trading next Monday, he may want to exercise those options. On the flip side, holders of puts could exercise their option and sell the stock if they expected a drop the following Monday.

5.  Policies concerning the exercise of options can vary from brokerage house to brokerage house so it’s advisable to check with your broker as soon as possible.

As always, subscribers are welcome to email us with specific questions about their own positions. We will try to respond to every question within a few hours.