Is This a Dead Cat Bounce for Valeant Pharmaceuticals Intl Inc (VRX)?

Valeant Pharmaceuticals Intl Inc (VRX) is rallying today amid news that its Philidor review is complete

by Kirra Fedyszyn

Published on Apr 5, 2016 at 10:51 AM
Updated on Jun 24, 2020 at 10:16 AM

Drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is on the rebound this morning, last seen up 9.8% at $28.66, after the company announced that an ad hoc committee's review of Valeant's relation with Philidor is now complete. According to the report, the committee found no items that would require restatement, and VRX will file is 10-K form before the end of April. However, some option traders are betting this is a dead cat bounce.

The stock was headed lower in early pre-market trading, on news that VRX is cutting its sales force for female sexual dysfunction drug Addyi, as well as some dermatology products. VRX has been stair-stepping lower since last August's record high, under pressure from its descending 80-day moving average, with the most recent bear gap stemming from ugly guidance. In fact, VRX has shed 87% over the past nine months, and tapped a new five-year low of $25.27 on Monday. 

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VRX options have garnered quite a bit of attention amid the company's fundamental flubs and the stock's subsequent volatility. Put open interest hit an annual high last Friday, and call open interest is in the 99th percentile of its annual range. Open puts and calls are neck and neck, with about 651,000 puts and 684,000 calls outstanding.

Today, VRX calls are slightly outpacing puts, but the most active position is the weekly 4/8 26-strike put. It appears a healthy portion of the puts may be bought to open -- indicating a fair number of traders expect VRX to resume its journey south this week, dipping back below the $26 level by Friday's close, when the weekly option expires.

Analysts haven't changed their outlooks much lately, with 65% maintaining "hold" or worse ratings. Short interest on Valeant Pharmaceuticals Intl Inc (NYSE:VRX) fell by more than 9% during the most recent one-month reporting period, and accounts for just 3.7% of the stock's available float.

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