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Herbalife Ltd. (HLF) Volatility Spikes as Short-Term Traders Pile On

Demand is rising for short-term options on Herbalife Ltd.

by 7/21/2014 2:09 PM
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Option volume has exploded today on Herbalife Ltd. (NYSE:HLF), with roughly 49,000 puts and 17,000 calls changing hands so far -- representing about seven times the stock's expected intraday activity. Most active is HLF's weekly 7/25 45-strike put, where 10,038 contracts have crossed the tape. This short-term contract currently has just 1,543 contracts in open interest, so it's safe to say new puts are being added at this deep out-of-the-money strike.

The skyrocketing demand for short-term bets on HLF is reflected by the stock's 30-day at-the-money (ATM) implied volatility (IV). This metric has surged 39.9% to 72.3% -- in the 86th percentile of its annual range. In other words, 30-day ATM IV on HLF has been higher only 15% of the time during the last year. The current annual high for this measure stands at 95%, which was reached on Jan. 29.

Speculators are swarming Herbalife Ltd. (NYSE:HLF) today amid a 6.6% slide for the shares, which last traded at $56.85. Traders are responding to new charges from activist investor -- and HLF short seller -- Bill Ackman of Pershing Square. Appearing on CNBC earlier, Ackman said he's planning to deliver a presentation Tuesday morning that will "expose incredible fraud" at Herbalife.


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