Herbalife Ltd. (HLF) Put Buying Nears Fever Pitch

Herbalife Ltd. option traders are buying short-term bearish bets

Dec 22, 2014 at 10:54 AM
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Herbalife Ltd. (NYSE:HLF) is sitting out the early broad-market rally, down 1.2% at $37.50. What's more, options traders are betting on more downside for the shares, with HLF puts trading at a 31% mark-up to the norm.

Roughly 4,400 HLF puts have changed hands so far today, compared to fewer than 700 calls. The equity's 30-day at-the-money implied volatility (IV) has popped 5% to 77.5%, underscoring a growing demand for near-term contracts.

Garnering notable attention is the weekly 12/26 35.50-strike put, where IV has surged 13.2 percentage points. Plus, the International Securities Exchange (ISE) confirms at least some buy-to-open activity, suggesting speculators expect HLF to breach $35.50 -- and possibly hit new annual lows -- by Friday's close, when the options expire. Meanwhile, longer-term bears are apparently buying to open the June 27.50 put, amid expectations for HLF to sink to two-year lows in the next six months.

Today's appetite for bearish bets merely echoes the growing trend, as the stock's 10-day put/call volume ratio on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 5.37 -- just 4 percentage points from an annual pessimistic peak. In the same vein, short interest accounts for 38.2% of HLF's total available float, representing more than 12 sessions' worth of pent-up buying demand, at the security's average pace of trading.

On the charts, HLF has shed more than 52% of its value in 2014, with rebound attempts halted by its 10-month moving average. Off the charts, Herbalife Ltd. (NYSE:HLF) remains a favorite target for activist investor Bill Ackman, and last week was asked by the Food and Drug Administration to stop airing a video that implies regulatory approval of its weight-loss products.

Monthly Chart of HLF since December 2012 with 10-Month Moving Average

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