Valeant Pharmaceuticals Intl Inc (VRX) Spikes on Ackman Name-Change Proposal

Valeant Pharmaceuticals Intl Inc (VRX) is continuing its trek back from multi-year lows

Nov 11, 2016 at 11:19 AM
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After dipping at the open, drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has tacked on a hefty 3.8% to trade at $17.46 following comments from activist investor Bill Ackman. During an interview with CNBC yesterday, Ackman floated the idea of changing the company's name in an effort to boost its battered reputation. He also took a shot at Valeant's former CEO, saying "Michael Pearson went crazy in my opinion." Meanwhile, VRX stock and options are seeing moderate volume after days of post-earnings and post-election excitement.

Digging deeper into VRX's option pits, a good portion of the volume is transpiring at the weekly 11/11 series, which expires at tonight's close.The weekly 11/11 17.50- and 18-strike calls occupy the top two spots, and both appear to be seeing buy-to-open activity. By purchasing these out-of-the-money positions, traders are banking on the underlying muscling above the respective strike prices through the closing bell.

As alluded to above, it has been a particularly interesting week for VRX, which plunged to a six-year low of $13.77 on Tuesday, following the company's disappointing turn in the earnings confessional. Since then, the shares have been clawing higher despite mixed news and negative analyst attention -- likely helped by a broader post-election rally in the pharmaceutical sector. Still, VRX shares are sitting on a painful 83% year-to-date loss.

Understandably, sentiment toward the stock has been skewed to the bearish side, with 10 out of 14 analysts rating VRX a "hold" or a "strong sell." However, with an average 12-month price target of $26.08 -- a 49% premium over current levels -- further downbeat analyst attention remains a possibility. And while short interest ticked lower during the most recent reporting period, these pessimistic bets still account for roughly 10% of VRX's total float.

That elevated short interest could also explain why calls have been so popular in the long-term underperformer's options arena. VRX holds a 50-day call/put volume ratio of 2.20 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- just 2 percentage points from an annual high. Likewise, the stock's call-skewed Schaeffer's put/call open interest ratio (SOIR) of 0.64 ranks in the low 3rd annual percentile.

In any case, options buyers may be looking at a golden opportunity. While speculators were all too happy to pay high premiums for their pre-earnings bets, thanks to the typical volatility crush, the stock's Schaeffer's Volatility index (SVI) of 79% now sits near the bottom quartile of its annual range. Put simply, Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) near-term options are currently pricing in unusually low volatility expectations, making them a relative bargain.

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