Chanos Waxes Pessimistic as Valeant Pharmaceuticals Intl Inc (VRX) Nears Asset Sale

Valeant Pharmaceuticals Intl Inc (VRX) traders have been buying to open call options over puts at a rapid-fire rate

by Alex Eppstein

Published on Oct 25, 2016 at 1:45 PM

A day after Valeant Pharmaceuticals Intl Inc (NYSE:VRX) failed to move on Bill Miller's bullish expectations -- specifically, the acclaimed fund manager predicted, "the stock doubles in three years"  -- the shares have caught fire. Boosting VRX stock are reports the drugmaker is "very close" to selling assets. At last check, the shares have advanced 2% at $22.02.

At the same time, Kynikos Associates founder Jim Chanos recently appeared on CNBC again to wax pessimistically on Valeant. This is, of course, within his best interests, considering Chanos is short VRX stock.

Technically speaking, it's hard to argue with him. The shares have been absolutely abysmal on a long-term basis, shedding 80% of their value year-to-date. In fact, in mid-2015, VRX raced past the $250 level before getting rocked by a predatory pricing scandal.

Chanos isn't the only one with serious doubts about the stock. For one, over 27 million shares are sold short. For another, two-thirds of covering analysts rate VRX a "hold" or a "strong sell."

About the only pocket of optimism is found in the options pits. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly twice as many Valeant calls as puts. Of course, it's possible these call buyers could be short sellers in disguise, hedging their short stock positions against an unexpected jump.

It looks like options optimism is reigning again today, too. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) calls more than double puts, 29,000 contracts to 11,000. Moreover, the most active option is the weekly 10/28 23-strike call, where all signs point to new positions being purchased.

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