Should Bulls Reconsider Valeant Pharmaceuticals Intl Inc (VRX)?

Valeant Pharmaceuticals Intl Inc (VRX) is failing to live up to the bullish expectations of option traders and analysts

Feb 22, 2016 at 12:14 PM
facebook X logo linkedin

Drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has a long history of making outsized moves; the shares soared to an all-time high of $263.81 back in August, only to drop over 70% in less than four months. Today, the stock is extending its analyst-induced slide from Friday -- giving back another 7.2% at $78.87, and maintaining its spot on the short-sale restricted list (SSR). To make matters worse, the stock could experience additional headwinds if some of the optimism among option traders begins to unravel.

Drilling down, there's been a predominant interest in calls over puts over the past 10 weeks. VRX's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 1.72. Not only does this tell us that almost two calls have been bought to open for every put, but this reading lands in the 89th percentile of its annual range, meaning this is an unusual bullish skew.

Further illustrating this point is the open interest breakdown on VRX. Calls account for seven of the pharmaceutical stock's 10 top open interest positions. Also, VRX's Schaeffer's put/call open interest ratio (SOIR) comes in at 0.85 -- an annual low. To put it simply, short-term speculators are more call-skewed than they've been at any other point over the past 12 months. 

Even with the stock's gap lower, call players aren't going anywhere. In today's trading, calls are crossing at roughly twice the average clip, and traders may be opening bullish positions at the March 130 call. If this is the case, it means they expect VRX to gain over 64% to topple $130 by the close on Friday, March 18, when the front-month options expire.

As mentioned, however, the shares are prone to making unexpectedly large moves, proven by their Schaeffer's Volatility Scorecard (SVS). This reading of 93 points to VRX's tendency to make much larger-than-expected moves during the past year, compared to what the options market prices in. Additionally, the firm is tentatively slated to unveil its quarterly earnings report this week, meaning it could see a big post-earnings swing.

Options traders aren't alone in their optimism, though, as analysts' outlooks remain extremely bullish. For one, nine of the 14 brokerage firms that cover Valeant Pharmaceuticals Intl Inc (NYSE:VRX) say it's a "strong buy," and zero deem it a "sell." Moreover, the stock's average 12-month price target of $156.36 stands at almost double current levels. 

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI