BUY, SELL, HOLD (2)

Valeant Pharmaceuticals Intl Inc (VRX) Sees a Rare Crop of Option Bears

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has reversed sharply lower, after congressional documents exposed possible price-gouging practices

Feb 2, 2016 at 2:06 PM
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Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has erased its earlier gains and is now 1.5% lower, after just-released congressional documents suggested the pharmaceutical firm raised the price of 20-plus drugs by at least 200% during the past two years to drive profits. In response, VRX issued a statement saying it is "making overall changes to how we run our business," and expects future growth "to be driven more by volume than by price."

With the stock tumbling, at least one group of traders is rolling the dice on additional end-of-week downside. Specifically, VRX's weekly 2/5 90-strike put is seeing likely buy-to-open activity, as speculators foresee the shares breaching the round-number $90 level by Friday's close, when the weekly series expires. Delta on the out-of-the-money strike has moved to negative 0.29 from 0.23 at Monday's close, hinting at an increased probability of an in-the-money finish.

Longer term, though, option traders have kept the faith in VRX, buying to open nearly twice as many calls as puts in recent months. Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has amassed a 50-day call/put volume ratio of 1.90 -- just 1 percentage point from an annual high.

If that's not enough, short-term open interest levels are unusually call-skewed. VRX's Schaeffer's put/call open interest ratio (SOIR) registers at 1.00, lower than all but 9% of comparable readings recorded in the prior 52 weeks.

This glass-half-full approach is pretty ambitious, considering Valeant Pharmaceuticals International Inc's (NYSE:VRX) longer-term struggles. At $94.20, the shares have dropped close to 64.3% since hitting a record high of $263.81 last August, pressured by a number of fundamental concerns, including Citron Research's ground-shaking short-seller report in October.

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