Valeant, Ackman Insider Trading Settlement Gets Day in Court

Valeant also unveiled a partnership with Egalet

Jan 3, 2018 at 10:24 AM
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Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) are trading up 4.5% at $22.76, after a U.S. court set a Jan. 16 hearing date for the drugmaker and Bill Ackman's Pershing Square Capital Management to discuss a proposed $290 million settlement between the two parties over an insider trading lawsuit. The accusations were made following Valeant's unsolicited bid for Allergan (AGN) in 2014, and the settlement was offered up last Friday.

Today's positive price action is just more of the same for VRX stock, which has more than doubled since skimming the $11 mark in early November -- guided higher by its 10-day moving average, and taking out long-term resistance in the $18 neighborhood along the way. This trendline emerged as a trusty floor during the stock's recent pullback from its mid-December annual high.

Options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been rushing to bet on more upside, too. Over the past 10 sessions, speculators have bought to open 84,042 calls on VRX, compared to 21,821 puts. The resultant call/put volume ratio of 3.85 ranks in the 85th annual percentile, meaning this rate of call buying has been unusual, relative to put buying.

And it's possible some of this call buying -- particularly at out-of-the-money strikes -- is a result of short sellers hedging their bearish bets against any upside risk. Short interest rose 7% in the latest reporting period to 34.25 million shares, or 11.1% of the stock's available float.

Whatever the reason, now's an attractive time to buy premium on short-term Valeant options. The stock's Schaeffer's Volatility Index (SVI) of 48% ranks in the 11th annual percentile of its annual range, suggesting low volatility expectations are being priced into near-term contracts. Plus, its elevated Schaeffer's Volatility Scorecard (SVS) reading of 98 suggests VRX stock has consistently rewarded premium buyers over the past year, by making outsized moves, relative to what the options market has expected.

In addition to the Ackman news, Valeant Pharmaceuticals said it had paid down $300 million in senior secured term loans, bringing its total debt reduction to $6.5 billion since the end of the first quarter in 2016. Plus, the drugmaker's OraPharma unit has partnered with Egalet Corp (EGLT) to help promote the latter's SPRIX nasal spray. The high-profile deal has EGLT up 4.8% to trade at $1.08, brushing off a downgrade to "hold" from "buy" and price-target cut to $1.50 from $6 at Stifel.


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