It’s hard to believe that shares in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) traded just shy of $300 as recently as August 2015. Following a 4.2% rally yesterday, on no discernible news, VRX stock closed at $14.31 — a 94% decline from those lofty August highs. As we know now, Valeant was plagued by financial mismanagement and a preponderance of debt, and it’s not out of the doghouse on that latter point just yet.

So, when the company announced earlier this week that it was releasing its fourth-quarter earnings report on Feb. 28, a bullish earnings play was not the first thing to pop into my mind. In fact, if the shares continue their current rally heading into the report VRX stock may be an excellent bear play.

Checking in with earnings expectations, Wall Street is looking for fourth-quarter earnings to plunge from $2.50 per share a year ago to just $1.21 per share in the most recent quarter. Additionally, revenue is seen dropping 16.1% year-over-year to just $2.34 billion.

But guidance could be the real key here, and with several of Valeant’s key patents expiring this year, the outlook may be grim.

Turning to the sentiment backdrop, there aren’t many bulls backing VRX stock at the moment.

Starting with the brokerage community, Zacks data reveals that only two of the 14 analysts following VRX stock rate it a “buy” or better. However, the 12-month price target for Valeant rests at $23.87 — a premium of about 66% to yesterday’s close! There is clearly additional room for target cuts on Valeant, which may be the case if guidance comes in below expectations.

Elsewhere, short sellers have been loading up on VRX stock recently. During the most recent reporting period, the number of shares sold short jumped 5% to 30.4 million shares. As a result, 19.6% of VRX stock’s total float, or shares available for public trading, is now sold short.

Click to Enlarge As for options traders, the total March put/call open interest ratio rests at 0.94, as puts nearly match calls among options set to expire within the next month. However, there is a major bullish push in the 10 March series — i.e., those options most affected by Valeant’s earnings.

In fact, the 10 March put/call OI ratio rests at an extremely bullish 0.34. This may reflect bullish optimism from VRX options traders, or it may be short sellers hedging their positions, as the stock can be quite volatile surrounding such events.

Speaking of volatility, 10 March implieds are through the roof for VRX stock, with options pricing in a potential post-earnings move of more than 17.7%. In other words, options traders are expect that VRX stock could fall as low as $11.72 or rally as high as $16.78 in the wake of the company’s quarterly report.

2 Trades for VRX Stock

Put Spread: With VRX stock rallying heading into earnings, it would appear that there is some enthusiasm left for this beaten-down pharmaceuticals firm. However, the company has yet to provide any real hope of a return to its glory days. As such, a sell-on-the-news event is highly likely.

Traders siding with the bears might want to consider a March $10/$12.50 bear put spread. At last check, this spread was offered at 52 cents, or $52 per pair of contracts. Breakeven lies at $11.98, while a maximum profit of $1.98, or $198 per pair of contracts, is possible if VRX stock closes at or below $10 when March options expire.

Call Spread: On the other hand, VRX has been beaten down really far amid considerable pessimism. While this means that the stock is not a buy-and-hold bull position by any means, it does mean that any bit of good news revealed in Valeant’s quarterly report could be blown into a considerable post-earnings rally.

While betting on such a rally is not for the faint of heart, those looking to take a risk on a contrarian play might want to consider a March $15/$17.50 bull call spread. At last check, this spread was offered at 70 cents, or $70 per pair of contracts. Breakeven rests at $15.70, while a maximum profit of $1.80, or $180 per pair of contracts, is possible if VRX stock closes at or above $17.50 when March options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.