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Herbalife Ltd. (HLF) is scheduled to report fourth-quarter earnings after tonight's close
Herbalife Ltd. (NYSE:HLF) is slated to take its turn in the earnings confessional after tonight's close, and according to Bill Ackman, Wall Street shouldn't be expecting much. Meanwhile, in the options pits, total volume has jumped to three times what's typically seen at this point in the day, with calls and puts crossing the tape in tandem.
Short-term traders are rolling the dice on a post-earnings plunge, and are buying to open HLF's weekly 2/27 28-strike put. In other words, these option bears expect HLF to settle south of the $28 mark at tomorrow's close -- when the weekly series expires.
Elsewhere, option bulls are gambling on a longer-term rebound in the shares, and are initiating new long positions at the stock's January 2017 60-strike call. By purchasing these calls to open, speculators expect HLF to topple the round-number $60 level by January 2017 options expiration. Delta on the LEAPS is docked at 0.37, suggesting a less than 2-in-5 chance the call will be in the money at expiration.
Overall, call buying has been preferred in HLF's options arena -- with those purchasing pre-earnings bets willing to pay a pretty penny. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day call/put volume ratio of 0.76 ranks in the 64th annual percentile. In other words, calls have been bought to open over puts at an accelerated clip in recent weeks.
Technically speaking, HLF has been a long-term laggard, and since hitting an all-time high of $83.51 in January 2014, the shares have surrendered roughly 59%. More recently, the equity has been pressured lower by its 50-day moving average since taking an earnings-induced dive last November -- although today's 1.4% pop that has Herbalife Ltd. (NYSE:HLF) trading at $34.12 has the security on pace to notch only its second daily close north of the trendline since Nov. 3.