Option Bears Cheer as Ackman Slams Herbalife Ltd. (HLF)

Herbalife Ltd. (HLF) touched a two-year low after being compared to Bernie Madoff

by Alex Eppstein

Published on Jan 7, 2015 at 12:10 PM
Updated on Apr 20, 2015 at 5:32 PM

Herbalife Ltd. (NYSE:HLF) is up 2.5% today to trade at $31.17 -- despite earlier reaching a fresh two-year low of $27.60, after long-time critic Bill Ackman weighed in on the nutritional supplements stock. Specifically, the hedge fund manager predicted HLF will miss its current-quarter earnings forecast, and compared the company to scam artist Bernie Madoff. Meanwhile, option bears are hoping the equity will resume its earlier downtrend.

During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), HLF has tallied a 10-day put/call volume ratio of 3.22, with long puts more than tripling calls. What's more, this ratio ranks in the 86th annual percentile, suggesting speculators have displayed a healthier-than-usual appetite for bearish bets over bullish of late. Similarly, the security's Schaeffer's put/call open interest ratio (SOIR) of 2.39 is higher than 82% of comparable readings from the last year.

Puts are again popular today, with the contracts crossing the tape at over two times the average intraday rate -- and easily outstripping calls. Some of this activity may spring from the fact that HLF is on the short-sale restricted (SSR) list for the third straight day, as bearish speculators look for alternative ways to place their bets.

By no means is negativity confined to HLF's options pits, as short sellers have zeroed in on the security. A lofty 39.5% of the stock's float is sold short, and would take nearly four weeks to repurchase, at typical daily trading levels. By the numbers, just under 30 million shares are sold short -- higher than all but one reading taken in the last year.

Of course, a hefty portion of those short positions belong to Ackman. Even before today's insult, he repeatedly referred to Herbalife Ltd. (NYSE:HLF) as a "pyramid scheme."


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