Put Buying Accelerates as Herbalife Ltd. (HLF) Slides

Herbalife Ltd. (HLF) touched a nearly two-year low earlier

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Published on Jan 5, 2015 at 2:26 PM
Updated on Apr 20, 2015 at 5:32 PM

Herbalife Ltd. (NYSE:HLF) is down 13.1% this afternoon to trade at $32.67, after being downgraded to "neutral" from "buy" at Buckingham. In fact, the shares earlier touched a nearly two-year low of $32.33, and found a place on the short-sale restricted (SSR) list. Not surprisingly, puts are flying off the shelves at close to three times the typical intraday rate. Also, short-term strikes are being targeted, per HLF's 30-day at-the-money implied volatility, up 13.3% to 89.3% -- in the 89th percentile of its annual range.

Short-term traders are buying to open the January 2015 30-strike puts, anticipating the shares will breach $30 by next Friday's close, when the front-month options expire. Historically speaking, the stock hasn't traded south of $30 since December 2012. Meanwhile, longer-term speculators are buying to open HLF's deep in-the-money March 47.50 put -- also in the hopes of additional downside.

Today's pronounced put-bias has been evident for some time. During the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), HLF has tallied a put/call volume ratio of 2.97 -- with long puts nearly tripling calls. What's more, this ratio is higher than 82% of all similar readings from the previous year.

Pessimism isn't isolated to Herbalife Ltd.'s (NYSE:HLF) options pits, either. In fact, nearly two-fifths of the security's float is dedicated to short interest, which would take close to four weeks to cover, at typical daily trading levels.

Weekly Chart of HLF since December 2012


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