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Bearish Traders Swarm Herbalife Ltd. (HLF) Despite Upbeat Headlines

HLF put options are unusually popular today

by 12/17/2013 11:15 AM
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Shares of Herbalife Ltd. (NYSE:HLF) cruised to an all-time high of $78.50 this morning, after the firm received a clean re-audit from PricewaterhouseCoopers LLP. The positive news also seems to have triggered a pair of price-target hikes at Canaccord Genuity and Janney. Nevertheless, option bears have been swarming the stock today, with roughly 19,000 puts exchanged so far -- more than quadruple the intraday norm.

Garnering notable attention is the weekly 12/27 75 strike, which has seen close to 2,300 puts change hands. The bulk of these contracts traded at the ask price, and today's volume has exceeded current open interest levels, signaling the initiation of fresh pessimistic bets. In other words, the speculators will start to profit if HLF retreats below the $75 level between now and the close on Dec. 27, when these weekly options expire.

Today's preference for puts over calls is a deviation from the stock's recent trend. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.46 ranks in the 87th annual percentile, reflecting a greater demand for long calls versus puts lately. However, since short interest accounts for a hefty 28.4% of HLF's available float, it's possible that some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to short sellers hedging their pessimistic positions.

Either way, Herbalife Ltd.'s (NYSE:HLF) technical prowess is undeniable, considering the shares have surged around 130% year-to-date to trade at $75.66. On the charts, the vitamin supplements guru remains atop its 20-week moving average, which has served as support since late April.


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