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Herbalife Ltd. (HLF) Options Still Flying Across the Tape

Herbalife Ltd. put options are in high demand, but implied volatility is cooling off

by 7/22/2014 2:00 PM
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Herbalife Ltd. (NYSE:HLF) is at the center of some fast and furious options volume this afternoon, with approximately 59,000 calls and 122,000 puts changing hands on the stock so far. By contrast, HLF's average daily options volume amounts to fewer than 6,100 calls and about 13,000 puts. However, implied volatility (IV) on the stock has cooled off considerably. After spiking 58.4% yesterday to close at 81.8%, 30-day at-the-money IV on HLF has tumbled 29.5% today to 57.7% -- near the middle of its 52-week range.

With puts more than doubling calls this afternoon, one of the top HLF trades involves the stock's August 57.50 and 52.50 put strikes. Specifically, it looks as though one bearish speculator may have initiated a bearish ratio spread by selling to open 2,000 August 52.50 puts, and simultaneously buying to open 1,000 August 57.50 puts. The ultimate goal of such a strategy would be for HLF shares to fall as low as $52.50 by the time front-month options expire.

However, HLF is skyrocketing today, with the stock up 15.6% to trade at $62.43. It seems the much-hyped "deathblow" presentation from investor William Ackman hasn't exactly proven devastating for the stock. Appearing on CNBC this morning ahead of the event, Herbalife Ltd. (NYSE:HLF) Chief Financial Officer John DeSimone downplayed Ackman's dire warnings, noting that the Pershing Square founder's "bark is always worse than his bite."


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