Citron Fueling Flood of Bausch Health Call Volume

Citron expects BHC stock to nearly double to $40

Oct 15, 2019 at 12:49 PM
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Shares of Bausch Health Companies Inc (NYSE:BHC) are higher this afternoon, thanks to a relatively rare bullish note from notorious short seller Citron Research. The firm said BHC stock is "on its way to $40" -- nearly double its current price -- as the stock "still trades with a 'Valeant discount' despite new management's 180-degree turn of corporate culture." As such, Citron thinks Wall Street will "finally take notice of BHC's 'pivot to offense'" after the pharmaceutical concern reports earnings in early November. What's more, it appears some Bausch Health options traders may be expecting the same thing.

BHC stock was last seen 3.2% higher at $21.56, on pace for a fourth straight daily gain -- its longest win streak since late July. The equity has been in a channel of lower highs since skimming the $26.50 region in May, but recently found support in the $18.50-$19 region -- which represents its year-to-date breakeven level. The shares haven't been north of $40 -- Citron's new target price -- since 2016.

BHC stock chart 1015

So far today, Bausch has seen roughly 27,000 call options change hands -- three times its average intraday volume, and about eight times the number of puts traded. Most popular is the November 20 call, where more than 3,000 contracts have traded, primarily on the ask side. If the speculators are buying the calls to open, they expect BHC shares to extend their trek north of $20 through options expiration on Nov. 15, which should encompass Bausch's next earnings release.

Short-term options traders are already more call-heavy than usual on BHC. The security sports a Schaeffer's put/call open interest ratio (SOIR) of 0.48, indicating near-term call open interest nearly doubles put open interest. This ratio registers in the 23rd percentile of its annual range, suggesting a bigger call bias than usual, relative to the past year.

Likewise, most analysts are already optimistic toward BHC. The consensus 12-month price target of $29.73 still represents a premium of roughly 38% to the equity's current levels, and 11 of 14 analysts maintain "buy" or better opinions.


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