Option Bulls Cheer the Valeant Pharmaceuticals Intl Inc (VRX) Bounce

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) hit a five-year low earlier

Alex Eppstein
Jun 20, 2016 at 2:05 PM
facebook twitter linkedin


Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is tracking the broader biotech sector higher today. Potentially fanning the bullish flames, the drugmaker announced investments in a pair of Canadian operations. Longer term, however, the stock has underperformed badly, leaving bullish options traders in a tough spot.

As alluded to, VRX is sharply higher this afternoon, up 3.1% at $22.72. However, it was quite a different story earlier on, when the stock tumbled to a five-year low of $21.77. To put that in perspective, the shares were hovering well above $200 this time last year.

That hasn't stopped options traders from purchasing fresh calls. In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), VRX speculators have bought to open 1.91 calls for every put over the past 10 weeks. The corresponding call/put volume ratio ranks in the bullishly skewed 94th annual percentile.

Further reflecting this call-skew, VRX's Schaeffer's put/call open interest ratio (SOIR) rests at an annual low of 0.70. In other words, short-term call open interest outstrips put open interest by an extreme margin, when looking at the last year's worth of comparable readings.

It could be that options traders are simply anticipating an extended bounce from VRX shares. Alternatively, it's possible the so-called bulls purchased the calls to act as options insurance. After all, short interest on the stock spiked 56.3% during the last two reporting periods, bringing total short interest to over 26 million shares.

Rounding out the sentiment picture, the brokerage crowd has taken a glass-half-empty approach toward Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Two-thirds of covering analysts rate the biotech stock a "hold" or "strong sell," and a gaggle of brokerage firms slashed their price targets on the shares less than two weeks ago.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter