Call Options Or Put Options On Valeant Pharmaceuticals (VRX)?
A major acquisition in the pharmaceuticals industry is making big news this week. In fact, Valeant Pharmaceuticals (VRX) made quite the splash with its planned acquisition of Allergan (AGN).
VRX shares are trading at $134.28, up nearly 16% over the last week. The stock’s up 87% from the 52-week low of $71.99 and is 12% below the 52-week high of $153.10.
Is this an opportunity to buy call options on VRX because the company plans to acquire Allergan? Or should you buy put options on VRX because of the company’s overly aggressive acquisition strategy?
The bulls make a convincing argument…
Valeant is teaming up with Bill Ackman and his Pershing Square fund to acquire Allergan in a stock-and-cash deal for nearly $46 billion. It’s basically a hostile takeover – although investors and analysts seem to really like the deal for both companies.
VRX is a generic drug company that’s been on a buying spree as it expands into specialty medicines. That makes AGN, known mostly for its Botox injections, as a perfect target.
Botox injections are growing like crazy. If VRX can cut costs and increase efficiencies at AGN while demand for Botox grows, it could be a very big win for the company. Valeant could become one of the major players in pharmaceuticals.
But the bears have a compelling case as well…
VRX may have a gotten a bump from the AGN announcement, but it could be a very temporary situation. Investor enthusiasm may not keep up with the facts of the deal.
After all, VRX has been on a wild acquisition spree. Can the company really take on all these new companies and products? Does a generic drug company really have what it takes to be a leader in specialty medicines?
These are the questions investors will have to contend with as the Allergan deal closes. Moreover, AGN is a much bigger acquisition than VRX’s other deals. Can it handle a company of that size?
So is the acquisition of AGN a reason to go bullish on VRX, or is the company’s aggressive acquisition strategy a reason for concern?
If you think the bulls are right, take a look at buying the VRX June $150 calls for around $2.75.
If you think the bears are right, take a look at buying the VRX June $115 puts for around $2.50.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
