Earnings Preview: Valeant Pharmaceuticals Intl Inc (VRX)

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will report earnings before the open on Tuesday

Kirra Fedyszyn
Aug 8, 2016 at 3:47 PM
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Long-troubled drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is preparing to report its second-quarter earnings ahead of the bell tomorrow. The stock has surrendered a painful 78% of its value in 2016 -- a year polluted with internal investigations, congressional testimonies, C-suite and boardroom shakeups, and delayed financial reports. It's perhaps unsurprising, then, that options traders appear to be shifting their expectations lower ahead of tomorrow's results.

At last check, VRX puts are trading at twice their expected intraday pace, with roughly 54,000 on the tape, narrowly outpacing calls. The weekly 8/12 series is also dominating the action, accounting for nine of the stock's 10 most active options. Topping the list is the 24-strike put, where traders are purchasing new positions, followed by the 19-, 21.50-, and 22-strike puts, with at least some buy-to-open action spotted at each. Today's put buyers are looking for VRX shares to slide below the respective strike prices by Friday's close, when the weekly series expires.

These expectations make sense, considering the stock's recent post-earnings performances. Though some of VRX's recent reports have been clouded by delays and restated figures, the shares dropped off sharply in the day following the drugmaker's early June results. Specifically, after the most recent quarterly earnings, VRX fell 14.6% in the subsequent session. This time around, options traders are pricing in an even wider 19.5% swing in either direction.

As alluded to earlier, today's preference for puts marks a change of pace for VRX, where call buying has been a popular strategy in recent months. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day call/put volume ratio stands at 2.06 -- just 7 percentage points from an annual high.

Outside of the options pits, bears have been backing off, too. Short interest on VRX fell by more than 9% during the last two reporting periods -- though these pessimistic bets still account for 9.4% of the stock's total float. Conversely, analysts have remained hesitant toward VRX, with 11 out of 15 handing out "hold" or "strong sell" ratings.

Today the stock is trading 2.2% higher at $22.45, as traders react to a round of management changes, as well as news of a licensing agreement with Norgine B.V. to develop and commercialize a colonoscopy preparation solution. Despite the rally, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) remains stuck firmly beneath its 50-day moving average, which has put pressure on the shares since early February.

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