Valeant Pharmaceuticals Int Inc (VRX) Sees a Rare Surge In Put Volume

Valeant Pharmaceuticals Intl Inc (VRX) is higher after ending a distribution agreement in Europe

Jul 1, 2016 at 3:06 PM
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Drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is 1.1% higher at $20.22, after the company announced that it has terminated its licensing agreement with AstraZeneca plc (ADR) (NYSE:AZN) to distribute the latter's experimental psoriasis drug, brodalumab, in Europe. The stock was flirting with its largest intraday gain in more than a month earlier, and the option pits are buzzing ahead of tonight’s weekly options expiration.

Jumping right in, VRX puts have changed hands at roughly 1.5 times their typical intraday rate, and have a slight lead over calls on an absolute basis. There appears to be spread activity taking place at several of the weekly 7/1 put strikes, which expire at tonight’s close, including what could be a roll of weekly puts out to the July and August series. Overall, the weekly 7/1 series accounts for half of the stock’s 10 most active strikes.

Today’s accelerated put activity is a change of pace for VRX. The stock’s 50-day call/put volume ratio of 1.99 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates calls have been bought to open at almost twice the rate of puts over the last 10 weeks. Moreover, this ratio sits higher than 98% of all comparable readings in the past year.

However, the catalyst behind this heavy call activity on VRX could lie outside of the options pits, where more than 10% of the stock’s total float is sold short. In fact, these bearish bets climbed by 24% during the most recent two-week reporting period. It’s likely some of these short sellers have been hedging their bets by picking up protective calls.

VRX has endured a rocky patch over the past 12 months, giving up 91% year-over-year, and hitting a fresh six-year low of $18.55 on Monday. While the majority of analysts still call the stock a “hold” or worse, Stifel today reiterated its “buy” recommendation and $55 price target -- a 172% premium to the current trading price -- saying that Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) "investments in Bausch+Lomb (B+L) appear to be positioning the company for a stronger presence in the lens market."

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