Valeant Pharmaceuticals Intl Inc (VRX) Traders Cheer Executive Exodus

It's been a brutal year for drug stock Valeant Pharmaceuticals Intl Inc (VRX)

Dec 13, 2016 at 11:29 AM
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Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is trading 0.4% higher at $14.74 this morning, following news three top executives have left the company, including former chief financial officer, Rob Rosiello. Shareholders may applaud the prospect of new blood at the company, considering VRX stock has surrendered more than 85% of its value year-to-date. In fact, analysts at Canaccord Genuity noted this morning, "we believe the changes may be good as the company seeks to reignite organic growth in its core franchises," while maintaining its lukewarm "hold" rating and $17 price target. With a 14-day Relative Strength Index (RSI) of 34 -- verging on oversold -- and amid largely bearish sentiment, VRX could be due for a short-term bounce.

Wall Street has been far from kind to the drugmaker, with 11 out of 14 analysts rating the shares a "hold" or "strong sell." Meanwhile, short interest has been growing, up 12.5% in the most recent two-week reporting period alone. With 32.7 million shares sold short, these bearish bets sit just shy of a record peak, and now account for nearly 11% of VRX's available float.

Interestingly, options traders have been taking a more call-skewed approach. Over the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have purchased more than two VRX calls for each put. The resulting call/put volume ratio of 2.08 ranks in the high 84th percentile of its annual range -- though it's possible some recent call buyers have been short sellers looking for a hedge.

Meanwhile, call open interest nearly doubles put open interest among VRX options set to expire in three months or less, per the stock's Schaeffer's put/call open interest ratio of 0.59 -- an annual low. Simply put, near-term options traders have never shown a stronger preference for calls over puts in the past year.

However, puts outweigh calls among near-the-money options, based on VRX's gamma-weighted SOIR of 1.31 -- further strengthening the suspicion that calls have largely been used as protection for shorts. In fact, peak call open interest in the back-month January series resides at the far-out-of-the-money 27.50 strike, followed by the 42.50 strike..

From a technical standpoint, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has done little to inspire confidence after plunging 94.4% from its August 2015 highs north of $260. In fact, the shares have been slumping steadily over the past few months, with the 10- and 20-day moving average continuing to pressure the stock lower. And given the security's brutal year-to-date returns, last-minute window dressing among fund managers means VRX could see even more trouble through the end of 2016.

VRX Daily Chart December13

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