The options market is pricing in low volatility expectations for Valeant Pharmaceuticals Intl Inc (VRX)
While Bill Ackman may be
winning with Herbalife Ltd. (NYSE:HLF) today, the activist investor is taking another hit with
Valeant Pharmaceuticals Intl Inc (NYSE:VRX). At last check, the biotech stock was down 3.6% at $21.69, and fresh off a nearly six-year low of $21.41. Nevertheless, one optimistic options traders is holding out hope that VRX stock rebounds over the next several weeks.
Amid a slower-than-average session in VRX's options pits, the stock's July 23 call has garnered notable attention. It seems safe to assume
new positions are being purchased at this front-month strike, meaning call buyers are anticipating a rally north of $23 by the time the options expire at the close on Friday, July 15.
These optimistic expectations are nothing new for VRX options traders. And while
there may be an ulterior motive to the recent rush of call buying, traders are nonetheless getting a relatively good deal on the stock's short-term calls.
For starters, VRX's
Schaeffer's Volatility Index (SVI) of 71% ranks in the 32nd annual percentile, suggesting premium on the equity's near-term options is pricing in low volatility expectations at the moment. Plus, its
Schaeffer's Volatility Scorecard (SVS) of 80 indicates the options market has historically underpriced Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) ability to make big moves over the past 12 months.
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