Valeant Pharmaceuticals Intl Inc (VRX) Options Traders Brave Climbing Premiums Ahead of Earnings

Valeant Pharmaceuticals Intl Inc (VRX) options traders are paying heavy premiums for their last-minute bets

Nov 7, 2016 at 3:12 PM
facebook twitter linkedin

Drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will take its turn in the earnings confessional before the market opens tomorrow. But options traders haven't been shy about placing bets ahead of the event, even as premiums on VRX options continue to rise. In fact, some speculators may be keeping expenses in mind with more creative strategies, but as a whole, the options market is pointing to some huge expectations for the stock.

As alluded to, VRX's short-term options are pricing in unusually high volatility expectations at the moment. The stock's Schaeffer's Volatility Index (SVI) of 141% sits in the top quartile of its annual range, while its 30-day at-the-money implied volatility ranks higher than 80% of the past year's readings, at 106.9%. Simply said, near-term options buyers are paying a hefty price in their attempts to profit from VRX's post-earnings moves. Speaking of which, the options market is currently pricing in a 26.2% single-day swing in either direction for VRX following tomorrow morning's report.

Digging down into today's action, both call and put volume are accelerated, and the weekly 11/11 series is particularly popular. The top spots belong to the weekly 11/11 18-strike put and 21.50-strike call, where it looks like one trader initiated a spread with 10,000 contracts at each. Just a little farther down the list are the November 24 and 29 calls, where a bullish long call spread -- consisting of 4,000 contracts at each strike -- was initiated, according to Trade-Alert. This bull looks to be offsetting the high cost of buying the 24 call by selling to open the 29 call.

Of course, not everyone is so optimistic. It looks like some traders may be buying to open the November 13 put. If so, put buyers are betting on a massive slide below the $13 level before the front-month expiration, on Friday, Nov. 18. On the other hand, it's plausible a few of these put buyers could also be VRX shareholders looking for a hedge against a downside move.

Taking a step back, calls have been the option of choice in VRX's options pits lately. In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 2.15 shows long calls more than doubling puts, and ranks higher than 96% of all readings in the past year. Likewise, VRX has a Schaeffer's put/call open interest ratio (SOIR) of 0.67 -- just 7 percentage points from an annual call-skewed high.

At the same time, it's possible short sellers have been picking up protective calls to hedge their bets. After all, short interest has been rising in recent reporting periods, and sits just shy of June's record-high levels. At present, more than 10% of VRX's total float is tied up in these bearish bets.

Technically speaking, VRX hasn't given shareholders much to cheer for in quite some time. The stock is off 81% year-to-date, and has continued to struggle after a series of massive drops between August 2015 and March 2016. More recently, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) dipped to a fresh six-year low of $17.75 just one week ago, and the shares' bounce back was stopped short at the $24 level. The stock was last seen off 0.7% for the day, at $19.06.

Schaeffer's Expiration Week Countdown subscribers just made 24% GAINS on Valeant Pharmaceutical (VRX) puts! Sign up now for a trial subscription.

Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!