Eleventh-Hour Put Buyers Pound Valeant Pharmaceuticals Intl Inc (VRX)

Before Mylan NV (MYL) was in hot water for alleged price-gouging, there was Valeant Pharmaceuticals Intl Inc (VRX)

by Alex Eppstein

Published on Aug 25, 2016 at 2:37 PM

Mylan NV (NASDAQ:MYL) is the latest drugmaker to come under fire for alleged price-gouging, recently drawing attention from Democratic presidential nominee Hillary Clinton. But it's hardly the only one. It wasn't that long ago that sector peer Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was getting roughed up on Capitol Hill for its predatory pricing practices. This afternoon, we'll take a closer look at VRX's recent technical track record, and how options traders have responded.

Currently, the pharma stock is 1.4% higher at $30.99, after Morgan Stanley waxed optimistic on the company following a meeting with upper management. Specifically, the brokerage firm reiterated its "overweight" assessment and $42 price target -- territory not explored since mid-March. That said, VRX shares have struggled from a longer-term perspective, falling 86% year-over-year.

In afternoon trading, VRX's weekly 8/26 series is popular, accounting for seven of the 10 most active strikes. In the lead is the weekly 8/26 31-strike put, with buy-to-open activity detected at the at-the-money option -- and confirmed by data from the International Securities Exchange (ISE). Said simply, traders foresee VRX settling the week south of $31.

This bearish betting represents a break from the prevailing trend. According to VRX's 50-day call/put volume ratio at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have preferred long calls over puts in recent months. Underscoring this bullish bias, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.83 sits below 85% of all readings taken in the past year.

However, given Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) technical struggles and high levels of short interest, it's possible some call buyers are actually short sellers hedging via protective calls. Specifically, short interest on the stock increased 11.5% during the last two reporting periods to a gaudy 33 million shares.

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