Did Herbalife Ltd. (HLF) Bears Get Played by a Bogus Report?

Traders may have bit on a false report involving Herbalife Ltd. (NYSE:HLF)

Jan 13, 2016 at 2:38 PM
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It looks like a highly questionable report of a death related to Herbalife Ltd.'s (NYSE:HLF) ​products is weighing on the stock today, while also driving activity in the option pits. The article suggests a person died after drinking HLF's milkshakes. The only problem is, similar reports have surfaced in the past -- using the exact same name for the victim. 

Let's put any and all speculation about these rumors aside and focus on a different type of speculation. Put volume on HLF is running at two times the average intraday pace. In the lead is the January 2016 50-strike put, where over 5,100 contracts are on the tape, suggesting some traders may expect further losses.

This put activity is especially notable considering the typical behavior in HLF's option pits. The stock's 50-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 1.25 -- just 2 percentage points from an annual high. In other words, call buying has been more popular than normal in recent months. 

Of course, HLF is a famously shorted stock, so we need to note the possibility of short sellers hedging. At normal daily volumes, it would take bears over 34 days to buy back their shares -- a brow-raising statistic. 

As alluded to, the strange rumors have weighed on Herbalife Ltd. (NYSE:HLF) shares all day. The stock dropped as much as 2.7% when the reports began to circulate this morning. At last check, HLF had pared some of these losses, down 1.3% at $50.24. Longer term, though, the stock has picked up 62% in the past 12 months. 

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