Valeant Could Be On the Cusp of Another Surge Higher

Drug stock Valeant Pharmaceuticals International Inc (NYSE:VRX) is continuing its climb higher, after brokerage firm TD Securities raised its price target to $27 from $20 earlier. The firm is in the minority with its "buy" rating on VRX; currently, the stock sports just four "buy" or better ratings, compared to 10 "holds" and five "sells."  

VRX shares are up 1.3% at $23.36 in electronic trading, not far from their Jan. 3 annual high of $23.47. From a broader perspective, VRX has rallied more than 140% in the past nine months alone.

What's more, the security also sports a Schaeffer's Volatility Index (SVI) of 49%, which ranks in just the 12th percentile of its annual range. According to Schaeffer's Senior Quantitative Analyst Rocky White, the last (and only other) time VRX was trading near a 52-week high with an SVI this low, the security went on to rally nearly 32% over the next month.

In the options pits, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows VRX's 10-day call/put volume ratio at an extreme 5.93, which ranks in the 100th percentile of its annual range. This suggests that calls have been purchased over puts at an annual-high pace.

However, some of those calls may have been bought as hedges. Short interest on VRX ramped up by 7% in the most recent reporting period, and now represents 11.1% of the equity's float. Given the stock's strongly bullish momentum of late, it's no surprise that these short sellers might be looking to limit losses via a call option hedge.