Valeant Pharmaceuticals Option Buyers Expect Another Earnings Win

VRX stock has moved higher after the drugmaker's last three earnings reports

Feb 27, 2018 at 2:35 PM
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Drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will step up to the earnings plate before the open tomorrow. Despite a big earnings win for sector peer Mallinckrodt (MNK) today, the shares of VRX are down 0.5% to trade at $18.77 this afternoon. However, VRX stock has made huge moves after earnings, historically, and it looks like recent options buyers are betting on a rally soon.

Looking back eight quarters, Valeant Pharmaceuticals stock has moved an average of 20.4% the session after earnings, regardless of direction. The stock was in the black after the last three reports, though, jumping 17.1% the day following the company's November earnings release.

Recent options buyers have been betting on a fourth straight positive earnings reaction for VRX shares. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open more than four Valeant Pharmaceuticals calls for every put in the past two weeks. The resulting 10-day call/put volume ratio of 4.17 is in the 85th percentile of its annual range, pointing to a much healthier-than-usual appetite for long VRX calls over puts of late.

Premium buyers can take comfort in the equity's Schaeffer's Volatility Scorecard (SVS), which stands at 99 out of 100. This further reflects that VRX stock has handily exceeded options traders' volatility expectations in the past year.

On the charts, the drug stock has been in a channel of higher lows and highs since its April nine-year low of $8.32. The shares peaked at $24.43 -- nearly triple that low -- in early January, before pulling back to test support at their 100-day moving average.

Should solid earnings once again propel Valeant stock to higher highs, there's still plenty of room on the bullish bandwagon. In fact, just three of 11 analysts consider VRX worthy of a "buy" or better endorsement, with Goldman Sachs recently initiating coverage with a "sell" rating.


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