Valeant Pharmaceuticals has fallen, and one investor is betting that it can't get up.
optionMONSTER's tracking programs detected the sale of 15,200 August 38 calls, most of which priced for $1.50, and the purchase of an equal number of August 48 calls. There was barely any open interest in either strike before the trade occurred.
The investor collected a credit of about $1.20, which they'll get to keep if the specialty drug maker stays below $38 for the next two weeks. They'll lose money over $39.20, with the red ink capped at $48 because of ownership in the 48 calls.
The trade is a call credit spread--a way of selling calls with protection against runaway losses if the shares rally. Separately, some 3,600 October 37 puts were bought, mostly for $2.71 and $2.75, which also reflects a bearish outlook. (See our Education section)
VRX is down 5.39 percent to $38.65 in afternoon trading. The stock had a blistering rally in the last two years after a complicated merger with Biovail.
The stock got slammed yesterday when, in addition to downside in the S&P 500, management said its Wellbutrin XL antidepressant was losing business to generic competitors. Guidance for the current quarter was also below forecasts as management sounded warnings on its U.S. business.
Overall option volume in the name is 19 times greater than average so far today.
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