There are 1.4 bearish puts on Allergan for each call outstanding, close to the highest level since 2008, according to data compiled by Bloomberg. Last week, two-month contracts betting on a decline in the shares reached the most expensive level since 2011, compared with those betting on a gain.
The battle is stretching into a fifth month. Allergan has rejected two takeover proposals, said it may do its own deal to fend off the suitor and filed a lawsuit alleging insider trading between Valeant and hedge-fund manager Ackman, whose Pershing Square Capital Management LP owns 9.4 percent of Allergan shares.
“People were impressed when Ackman took a stake and kind of saw it as an ordained conclusion that he would get Allergan,” Scott Houlihan, a merger arbitrage research analyst at Purchase, New York-based Ota Limited Partnership, said via phone. “I imagine everyone in the arb community underestimated the will of these guys to get away.”
