Go Long Valeant Pharmaceuticals Intl Inc (VRX) Stock for Free

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I classify Valeant Pharmaceuticals Intl Inc (NYSE:VRX) trades as casino trades because lately, they have been more like gambling than investing. But I do need more speculative plays in my portfolio, and VRX stock was one of my go-tos last year.

Valeant Pharmaceuticals International, Inc. (VRX)

When they say don’t catch falling knives, they were probably talking about Valeant. The bull and bear arguments on this pharma stock are so bifurcated that I can’t tell who is making sense and who is making things up. So I will trade purely based on the price action I’ve seen so far and definitely with as much caution as possible.

The good news is that VRX stock is now cheap enough to where the zero scenario is not that disastrous for me.

I won’t try to make the fundamental argument of why I should bet long Valeant stock, but I can definitely caution shorting it. While it seemed like a bottomless pit at times, the upside potential is even scarier because it is by definition unlimited.

How to Trade VRX Stock

The Bet (And Emphasis on “Bet”!) – Long VRX Sstock: Sell the Oct $9 put and collect 80 cents per contract to open. With this, I am collecting a premium for the opportunity to own Valeant if it falls below my strike. Anything below 8.20 would accrue losses for me.

Alternatively, I could make this a credit put spread to limit the maximum exposure.

VRX stock chart
Click to Enlarge

For this trade to be successful, I only need VRX stock to stay above my risk, but if someone sees upside potential, then they can add a call position to capture it.

The Juice (Optional): Buy the Jun $15/$16 debit call spread, and if the price rallies past my spread, it would be more than a double. Buying the $15 calls naked would really juice the profit and it would still be an overall zero cost of entry.

As long as VRX stock stays above the sold puts, any premium I recapture from selling calls purchased would be pure profit.

As I’ve already noted above, I won’t be selling upside risk for balance. This is one of those trades where I plug my nose and take with as much caution as possible.

E-mail sellspreads@gmail.com with questions or join me to learn more about options in a personal 1on1 webinar here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/go-long-valeant-pharmaceuticals-intl-inc-vrx-stock-for-free/.

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