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Implied Volatility Surging for Valeant Pharmaceuticals (VRX) Stock Options

Zacks Equity Research
Lincoln National's (LNC) third-quarter earnings gain on the back of solid segmental performances and a prudent capital management.

Investors in Valeant Pharmaceuticals International, Inc. VRX need to pay close attention to the stock based on moves in the options market lately. That is because the Aug 10, 2018 $16 Put had some of the highest implied volatility of all equity options today.

What is Implied Volatility?

Implied volatility shows how much movement the market is expecting in the future. Options with high levels of implied volatility suggest that investors in the underlying stocks are expecting a big move in one direction or the other. It could also mean there is an event coming up soon that may cause a big rally or a huge sell off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

What do the Analysts Think?

Clearly, options traders are pricing in a big move for Valeant Pharmaceuticals shares, but what is the fundamental picture for the company? Currently, Valeant Pharmaceuticals is a Zacks Rank #3 (Hold) in the Medical - Drugs industry that ranks in the Bottom 38% of our Zacks Industry Rank. Over the last 60 days, one analyst has increased its earnings estimates for the current quarter, while no analyst has dropped its estimates. The net effect has taken our Zacks Consensus Estimate for the current quarter from 80 cents per share to 81 cents in that period.

Given the way analysts feel about Valeant Pharmaceuticals right now, this huge implied volatility could mean there’s a trade developing. Often times, options traders look for options with high levels of implied volatility to sell premium. This is a strategy many seasoned traders use because it captures decay. At expiration, the hope for these traders is that the underlying stock does not move as much as originally expected.

Looking to Trade Options?

Each week, our very own Dave Bartosiak gives his top options trades. Check out his recent live analysis and options trade for the NFLX earnings report completely free. See it here: Bartosiak: Trading Netflix's (NFLX) Earnings with Options or check out the embedded video below for more details:


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