Written by: PM Eden Rahim, FEBRUARY 23, 2016
Valeant’s 20-day ratio of volume traded in Call options to Put options has fallen from a very optimistic 1.4X in mid-December to a more pessimistic 0.6X currently. Over the past year,similar readings around 0.6X or less has led to rallies in most cases: late April, May & October 2015 & short term stabilization in Sept 2015 before a failure.
Paradoxically, since December when the ratio of Calls traded to Puts traded began to decline, the Open Interest in Calls expanded relative to Put open interest. It appears due to Put open interest declining from over 400,000 contracts to around 250,000 contracts, while Call option open interest remained stable around 300,000 contracts.