Options Trading Spikes as Valeant Pharmaceuticals Stock Skims Lows

Valeant Pharmaceuticals Intl Inc (VRX) shares are crashing following a debt refinancing agreement

Mar 6, 2017 at 2:26 PM
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Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is tanking on news the drugmaker is refinancing over $30 billion in debt, after paying down $1.1 billion via asset sales. At last check, the stock has tumbled 5.2% to trade at $12.38, and earlier hit a seven-year low of $12.30. Meanwhile, options traders are placing bets aggressively on VRX shares.

Diving right in, the stock's options pits are running at 1.4 times the usual intraday clip. Among the most active strikes is the deep out-of-the-money March 17 call, where new positions may have been purchased. Buyers are possibly gambling on VRX muscling atop $17 by front-month expiration, at the close next Friday. Alternatively, with 33 million shares sold short, it's possible short sellers scooped up the calls as upside protection.

Also active are the weekly 3/10 12-strike put and the March 13 put, where it seems buy-to-open activity is transpiring. In this case, traders are picking up the options to gamble on VRX extending its run lower through the respective expiration dates, this Friday night and next. This echoes the action seen in recent weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock's 10-day put/call volume ratio of 0.74 ranks just 9 percentage points from a 52-week high.

Whether today's options trading is of the bullish or bearish variety, now is a good time to purchase premium on front-month strikes. Valeant's Schaeffer's Volatility Index (SVI) of 62% sits in the low 15th annual percentile, suggesting contracts on short-term strikes can be had on the relative cheap.

Technically speaking, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been a nightmare for long-term shareholders, who have watched it dive 94% over the past two years. There's a good chance the stock will take a breather from its run lower, though. Specifically, VRX shares have breached their lower Bollinger Band, suggesting they're in oversold territory.

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