Herbalife Ltd. (HLF) Puts Hot After Ackman Takes Aim

Herbalife Ltd. hit a new low after Bill Ackman's video, triggering bearish options betting

by Andrea Kramer

Published on Dec 17, 2014 at 2:35 PM
Updated on Jun 24, 2020 at 10:16 AM

It's been a wild ride for Herbalife Ltd. (NYSE:HLF) today. After dropping 5% to a new annual low of $35.45, the shares have bounced back in spite of activist investor Bill Ackman's latest bearish presentation, in which he predicted the "pyramid scheme" will implode under the scrutiny of regulators. At last check, HLF has muscled 1.3% higher to $37.86, though bearish bets are gaining traction in the options pits.

Roughly 12,000 HLF puts have traded so far today -- about four times the number of calls exchanged, and representing a 30% mark-up to the stock's average intraday put volume. It looks like speculators are buying to open the deep in-the-money January 2016 70-strike put -- most active on the day -- while short-term bears are circling the December 35 put, which will move into the money if HLF retreats below $35 (and deeper into new-low territory) by Friday's close, when front-month options expire.

Today's affinity for pessimistic positions is par for the course for HLF. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 3.72 stands higher than 94% of all other readings from the past year. In other words, option buyers have picked up HLF puts over calls by a wider-than-usual margin during the past two weeks.

Daily Chart of HLF since January 2014

Technically speaking, Herbalife Ltd. (NYSE:HLF) has surrendered more than half its value in 2014, and has underperformed the broader S&P 500 Index (SPX) by more than 30 percentage points in the past two months. As such, it's no surprise that Ackman isn't the only one shorting HLF; short interest accounts for 38.2% of the equity's total available float, representing more than 12 sessions' worth of pent-up buying demand, at HLF's average daily trading volume.


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