Bullish Bets Build as Valeant Pharmaceuticals Intl Inc (VRX) Breaks Out

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has rallied nearly 18% in the last two sessions

by Alex Eppstein

Published on Mar 22, 2016 at 11:48 AM
Updated on Jun 24, 2020 at 10:16 AM

Embattled drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is up big for the second day in a row, following Monday's front-office shake-up -- and despite reports that the company's largest stakeholder, Sequoia Fund, sold 1.5 million shares last week. Today's positive price action has options traders busy on the call side of the aisle, where intraday volume is running at 1.4 times the norm.

Diving deeper, 33,000 VRX calls on the tape, or twice the number of puts. From the looks of it, traders may be buying to open the weekly 3/24 30- and 31-strike calls, hoping the stock extends its gains through this Thursday's close, when the weekly series expires.

This preference for long calls over puts is business as usual, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, VRX's 50-day call/put volume ratio across these exchanges checks in at 1.47 -- outstripping four-fifths of all other readings taken in the last 12 months

From a historical perspective, trading on VRX call options has been extremely popular of late. In fact, call open interest stands at more than 585,500 contracts -- in the 99th percentile of its annual range. Seeing the biggest increase in call open interest during the last two weeks is the deep out-of-the-money May 42.50 strike, with roughly 20,900 contracts added.

As alluded to, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been heating up since hitting a five-year low of $25.99 yesterday, up almost 20% at $31.10 -- including a 7.3% gain today. However, the stock could struggle to break out beyond the round-number $30 area, considering heavy front-month call open interest resides at the 30 strike.

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