Valeant Stock Surge Stalls After High-Profile Downgrade

VRX options bulls have been active amid the stock's recent rally

Managing Editor
Dec 14, 2017 at 9:52 AM
facebook twitter linkedin

This morning, biotech stock Valeant Pharmaceuticals International, Inc. (NYSE:VRX) was downgraded to "underweight" from "neutral" at J.P. Morgan Securities, although the brokerage firm issued a price-target hike to $12 from $10. Analysts cited Valeant's patent erosions and lofty earnings estimates over the next two fiscal years, as well as skepticism for specialty pharma in 2018 as reasons for the downgrade.

Out of the gate today, VRX stock is down 4.5% at $21.05. This marks a change of pace to the security's recent trajectory, with Valeant up 101% from its early November lows and fresh off yesterday's an annual high of $22.81. However, the equity's 14-day Relative Strength Index (RSI) closed last night at 84, firmly in "overbought" territory, suggesting a short-term breather may have been in the cards.

Options buyers have preferred calls over puts at an unusual clip amid the stock's uptrend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), VRX's 10-day call/put volume ratio of 3.42 ranks in the 77th percentile of its annual range.

Those currently targeting the stock's short-term options are in luck. For starters, VRX's Schaeffer's Volatility Index (SVI) of 54% ranks in the 19th annual percentile, meaning low volatility expectations are being priced into short-term options. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) of 90 suggests the drug concern has consistently rewarded premium buyers over the past year by making bigger-than-expected moves on the charts.




These investors are using the market's volatility to their advantage and scoring triple-digit gains on many of their trades.

Even in today's sideways bear market, this trading strategy has continued to provide consistency and profitability to a small group of investors. By using this approach, these traders are removing directional risk and still hitting triple-digit returns. If you want access to this strategy, and lower risk with higher returns sounds good to you, then don't wait another minute.

Join us now to receive our next trades the moment they come out!


Common mistakes options traders make


Special Offers from Schaeffer's Trading Partners