Valeant Pharmaceuticals Options Traders Brace for Bigger Losses

VRX has struggled this year, and breached the key $18 level in February

Apr 6, 2018 at 9:54 AM
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Mizuho upgraded Valeant Pharmaceuticals Intl Inc (NYSE:VRX) to "neutral" from "underperform," and boosted its price target by $5 to $15. The brokerage firm said it doesn't see any "near term sell catalysts," and that it believes the Bausch + Lomb parent will reach its 2018 guidance. The analyst in coverage did caution, however, that it expects the drugmaker's turnaround efforts to take longer than forecast, and that growth will likely not be achieved until at least 2020.

Looking at the charts, it's been a rough year for VRX stock, which is down more than 35% from its early January annual high of $24.43. More recently, a handful of bear gaps in late February and early March sent the shares gapping below the key $18 level, which has served as support and resistance going back to 2016. At last check, VRX stock was up 0.3% at $15.81, but a number of options traders are betting on the equity to resume its longer-term slide.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.36 ranks in the 100th annual percentile. In other words, puts have been bought to open over calls at a faster-than-usual clip.

The bulk of this action has centered at the April 14 put, where more than 6,900 positions were added in the past two weeks. Data from the major options exchanges confirms significant buy-to-open activity here, meaning traders expect VRX stock to breach $14 for the first time since an early November bear gap by the close on Friday, April 20 -- when the front-month options expire.

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