Valeant Pharmaceuticals, Mallinckrodt in Citron Research's Crosshairs

Citron Research's Andrew Left changed his tune on one stock, while throwing down the gauntlet on another. Specifically, Left -- who once compared Valeant Pharmaceuticals Intl Inc (NYSE:VRX) to Enron, and accordingly, shorted it -- said he's now long VRX stock. At the same time, the founder of Citron Research added that he's short Mallinckrodt PLC (NYSE:MNK), which he previously called a "poster child" for price gouging. Left's comments have both drug stocks moving, and their options pits popping.

At last check, VRX has added 6.2% to trade at $28.72, thought it's still lost nearly three-quarters of its value in 2016. Call options are crossing the tape at nearly twice the usual intraday rate, with volume ranking in the 96th percentile of its annual range. This is more of the same for the stock, as its call open interest upward of 892,000 contracts outstrips all comparable readings from the past year.

Digging deeper, buy-to-open activity may be taking place at VRX's May 28 and 30 calls. If this is the case, the call buyers believe the shares will continue to surge through week's end, when the front-month series expires.

Of course, Valeant Pharmaceuticals Intl Inc won't get much help in the way of short-covering activity. Not only has Citron flip-flopped from short to long, but swarms of short sellers have been hitting the exits of late. During the most recent reporting period alone, short interest fell 23.3%, and it would take less than one session for short sellers to cover their remaining positions, at VRX's typical volume.

Shifting gears, Citron remains a huge critic of MNK, with Left earlier challenging the company to start a clinical trial to determine the efficacy of its Acthar gel -- and promising to donate $1 million to charity, should the drugmaker comply. Yet, the stock is up 3.5% at $61.84, and has advanced 21.5% since hitting a two-year low of $50.90 in mid-March, after the company told CNBC that its growth plan is based on volume.

Options traders are seemingly standing behind Citron's more negative assessment. Puts are currently being exchanged at triple the usual intraday clip, and five times the rate of calls. Digging deeper, buy-to-open action is detected at the May 57 and 59 puts, hinting at expectations for MNK to reverse south of the respective strikes by Friday's close.

This is par for the course, based on data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, Mallinckrodt PLC has racked up a 10-day put/call volume ratio of 2.99, with long puts roughly tripling calls. What's more, this ratio outstrips 71% of all others taken in the past 12 months.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.