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Has Herbalife Finally Hit Bottom?

HLF puts have rarely been in greater demand

by 11/30/2012 12:34 PM
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Options traders have rarely felt more bearish toward Herbalife Ltd. (NYSE:HLF - 46.08), according to recent volume data from the major exchanges. During the past five sessions, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 10,629 puts on HLF, along with only 1,017 calls -- netting the stock a lofty put/call volume ratio of 10.45.

From a broader view, HLF has racked up a 10-day put/call volume ratio of 11.22 on the ISE, CBOE, and NASDAQ OMX PHLX (PHLX). This ratio ranks above 99% of other such readings taken over the past 52 weeks, as traders have scooped up puts over calls at a faster pace only 1% of the time.

Checking out the short-term landscape, the shares sport a Schaeffer's put/call open interest ratio (SOIR) of 2.56, with puts more than doubling calls among options set to expire within three months. This SOIR arrives in the 100th percentile of its annual range, marking a peak of pessimistically slanted speculation among near-term options players.

Elsewhere, short sellers have also piled on. Short interest on HLF jumped by 11.9% over the most recent reporting period, and now accounts for a substantial 16% of the equity's float. At the stock's average daily trading volume, it would take more than 13 sessions for all of these bearish bets to be covered.

HLF is down 12.7% year-to-date, though the stock is chipping away at that loss with a gain of more than 2% in today's trading. Despite its dismal technical performance, HLF is still holding above support in the $42-$44 area, and the shares have some room to run before encountering potential resistance at their 80-day and 200-day moving averages.

Daily Chart of HLF since April 2012 With 80-Day and 200-Day Moving Averages

While it may be too soon to turn bullish on HLF, the combination of reliable technical support and heavily bearish sentiment could indicate the stock has finally found bottom.


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