Valeant Pharmaceuticals Intl Inc (VRX) Calls Hot After Drug, Walgreens News

Upbeat drug news and positive comments from Walgreens has Valeant Pharmaceuticals Intl Inc (VRX) moving higher

Jul 6, 2016 at 2:22 PM
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Biotech stock Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has added 11.3% today at $22.20 -- and call option volume is soaring -- after the company's wholly owned Bausch + Lomb, along with Nicox S.A., announced promising results for latanoprostene bunod (LBN) -- or Vesneo, an eye drop primarily for glaucoma patients. This treatment is likely to remain in the spotlight, as the U.S. Food and Drug Administration (FDA) is set to make an approval decision on Vesneo later this month. In fact, this is one reason some forecasters are predicting VRX stock to hit $90

The positive drug news isn't the only reason VRX is flying high today, however. Walgreens Boots Alliance Inc (NASDAQ:WBA) -- which released its fiscal third-quarter results this morning -- spoke positively about its relationship with Valeant. Specifically, WBA CEO Stefano Pessina said, "We are satisfied and pleased with performance in the dermatology business the volume is as expected."

Of course, it's hard to get excited about VRX, given its technical -- and fundamental -- history. Even with today's pop, VRX is down 78% in 2016, and the shares don't seem to be in a hurry to move out of the low-to-mid $20 range that they've called home since early June -- let alone make the 300% jump to $90. On the other hand, it's not as though this is unfamiliar territory for VRX, as the stock was trading above $260 less than a year ago. 

Nevertheless, optimism toward VRX is a rare thing on Wall Street. Eleven of 15 brokerage firms rate the stock a "hold" or "strong sell." Plus, short interest continues to surge, growing by 34.5% during the previous two reporting periods. Now a record 32.6 million VRX shares are sold short -- or 10% of the stock's float. 

Options traders, though, have remained committed to call options. The stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 2.54, putting it in the 84th percentile of its 12-month range. 

This trend is continuing today, with VRX calls trading at almost twice the expected intraday pace. Moreover, nine of the 10 most popular contracts today are calls, and the weekly 7/8 series is seeing heavy action. Leading the way are the 20.50- and 25-strike calls, which appear to be seeing buy-to-open action. This means traders are betting on extended Valeant Pharmaceuticals Intl Inc (NYSE:VRX) gains through week's end, when the contracts expire. As a side note: while it's likely many VRX short sellers have used call options to hedge in the past -- contributing to the aforementioned call-skew -- such a scenario is unlikely with today's buyers, considering the weekly calls' short lifespans. 

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