Options Bulls Blitz Booming Valeant Pharmaceuticals Stock

VRX stock has surged almost 55% since early April

by Karee Venema

Published on Jun 5, 2018 at 1:02 PM
Updated on Jun 24, 2020 at 10:16 AM

Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which will change its name to Bausch next month, is trading up 5.4% at $23.18, after an analyst at H.C. Wainwright said the drugmaker is becoming more financially fluid thanks to a lighter debt load. While the brokerage firm maintained its "neutral" rating and $20 price target, today's options traders are scrambling to bet on more upside.

At last check, around 47,000 VRX calls were on the tape -- nearly triple what's typically seen at this point in the day, and almost six times the number of puts traded. The weekly 6/8 series is hot, with buy-to-open activity detected at the 22.50-, 23-, 23.50-, and 24-strike calls. Looking ahead, traders may also be purchasing new positions at the June 24 call, which expires at next Friday's close.

From a broader perspective, it's actually been put buyers who have been unusually active in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Valeant's 10-day put/call volume ratio of 0.58 ranks in the 86th annual percentile. While this shows that calls have outpaced puts on an absolute basis, the rate of put buying has been quicker than usual.

Regardless of which way VRX options traders are positioning themselves, it's a prime time to buy premium on short-term contracts. The stock's Schaeffer's Volatility Index (SVI) of 35% ranks in the 4th annual percentile, meaning low volatility expectations are being priced into near-term options.

Plus, the security has consistently rewarded premium buyers over the past year, per its elevated Schaeffer's Volatility Scorecard (SVS) reading of 97 (out of a possible 100). In other words, Valeant stock has tended to make outsized moves, relative to what the options market was expecting.

On the charts, shares of the Bausch + Lomb parent have surged nearly 55% since taking a bounce off of familiar support at their 320-day moving average in early April. More recently, an early May earnings-fueled bull gap helped send VRX stock slicing through the round $20 level, and the equity is now closing in on its Jan. 5 annual high of $24.43.

vrx stock daily price chart on june 5


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