Earnings Preview: Valeant Pharmaceuticals Intl Inc (VRX)

Valeant Pharmaceuticals Intl Inc (VRX) will finally release its fourth-quarter earnings results tomorrow

by Josh Selway

Published on Mar 14, 2016 at 4:04 PM

Biotech Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been one of the most closely watched stocks on Wall Street in 2016 -- and not for good reason. There have been a series of missteps for the firm this year, not least of which was postponing its fourth-quarter earnings release. Well, VRX is finally ready to unveil its quarterly results ahead of the bell tomorrow, so let's see how traders both in and out of the options arena are preparing for the event. 

In the options pits, call buying has been more popular than put buying at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) leading up to the event. This is evidenced by VRX's 10-day call/put volume ratio of 1.19.

The stock's Schaeffer's put/call open interest ratio (SOIR), meanwhile, shows a near-even split between calls and puts in the stock's front three-months' series of options, coming in at 1.01. However, this SOIR arrives in the 15th percentile of its annual range, meaning short-term options traders are much more call-heavy than what's normally seen. 

Today, where call volume ran at an accelerated clip. The most popular option was the March 70 call, which apparently saw buy-to-open activity. By initiating long positions here, speculators are betting on a move back atop $70 from the shares before the front-month contracts expire at Friday's close. 

Usually ahead of such a high-profile event like an earnings release, a stock's near-term options will show inflated premiums, as volatility expectations rise. However, VRX's Schaeffer's Volatility Index (SVI) of 82% lands in just the 52nd percentile of its annual range. So from a volatility perspective, considering that earnings will be released tomorrow, the stock's options can be had at reasonably fair prices.

Then again, VRX's post-earnings moves in the past haven't been too extreme. Looking back six quarters, the stock's posted an average swing of 5% in sessions immediately following earnings. This time around, the options market is pricing in a much greater swing of nearly 19% for tomorrow's trading! 

On the charts, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is still trying to recover from its late-2015 slide, which began with Citron Research's damning short-seller report. The stock shed 0.7% today to settle at $69.04, bringing its losses to 53% since the report was released. 

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