Valeant Pharmaceuticals Intl Inc (VRX) Options Pop After Citron Swipe

Valeant Pharmaceuticals Intl Inc (VRX) gave back its morning gains and fell hard into negative territory

Jul 13, 2016 at 3:27 PM
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Valeant Pharmaceuticals Intl Inc (NYSE:VRX) started the day on a positive note, despite a major shareholder unloading its full position. Around midday, however, traders were faced with reports that former CEO Michael Pearson sold a nearly 5 million shares of the company's stock for roughly $96.8 million. Paired with comments from Andrew Left of Citron Research, who said VRX is an "obvious zero now," the news sent VRX plummeting, last seen down 5% at $22.05. Options traders have wasted no time responding, with calls and puts trading at twice their expected intraday rates.

Most popular is the July 25 call, with more than 11,000 contracts on the tape. It looks like a mix of buy- and sell-to-open action has transpired on the call today, with buyers eyeing a rally in the shares by the end of the week, when the front-month series expires, and sellers betting the $25 level will act as a technical ceiling. VRX has not closed above $25 in more than a month.

Further down, a large spread at the January 2017 27.50- and 42.50-strike calls is accounting for a good share of today's call volume.  Also of note, it looks like some traders may have purchased news positions at the VRX October 10 put earlier today, betting on a more than 50% slide over the next three months.

Taking a step back, call buying has been the strategy of choice among options traders in recent weeks. Near-term traders have also been especially call-heavy toward VRX, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.71 -- lower than 94% of the past year's readings.

Pessimism runs high outside of the options pits, however, where a hefty portion of the stock's float is wrapped up in short interest, and 73% of analysts rate VRX a "hold" or "strong sell." These bearish opinions seem warranted, however, as Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has given up more than 90% of its value over the last 12 months, and hit an almost six-year low of $18.55 at the end of June.

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