Valeant Pharmaceuticals Intl Inc (VRX) and the $1.2 Million Options Bet

Another dismal day has traders flooding the Valeant Pharmaceuticals Intl Inc (VRX) options pits

by Alex Eppstein

Published on Sep 29, 2016 at 3:11 PM

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has plunged 5% to $25.10, as biotech stocks weigh on the broader market. Amid the beatdown, options traders have set their sights on the Canada-based drugmaker -- especially on the put side of the aisle, where contracts are running at 1.7 times the intraday norm.

That said, the most active VRX option is actually the January 2017 30-strike call. International Securities Exchange (ISE) data confirms a sweep 4,400 contracts was bought to open here for $2.70 apiece, resulting in a total net debit of roughly $1.2 million (premium paid * number of contracts * 100 shares per contract). The option bull's goal is for the stock to topple breakeven of $32.70 (strike plus premium paid) by January expiration. Of course, given that 26.4 million VRX shares are sold short, as well as the deep out-of-the-money nature of the strike, it's possible the call buyer could be a short seller hedging her bearish stock position against an unforeseen breakout.

Taking a step back, calls have been the options of choice lately at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). VRX's 20-day call/put volume ratio is a top-heavy 2.48, with long calls more than doubling puts. What's more, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.77 ranks in the call-skewed 9th percentile of its annual range.

Technically speaking, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been nothing short of a disaster -- pressured by a string of drug pricing scandals. Year-over-year, the biotech stock has tanked 86%, and it currently shows signs of tumbling further under the weight of its descending 30-week moving average.

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