Herbalife Ltd. (HLF) Option Bull Buys More Time

Herbalife Ltd. (NYSE:HLF) option trader rolled her long March 60 call out to the May series

Mar 1, 2016 at 2:27 PM
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Herbalife Ltd. (NYSE:HLF) is rising along with the broader stock market, up 3.1% at $56.44. To the dismay of activist investor Bill Ackman, this only extends the equity's bounce from its Feb. 12 year-to-date low of $42.26 -- up 33.6%, due in large part to last week's earnings-induced bull gap. Today's jolt higher has sparked a rush of call activity on HLF, with one speculator, in particular, eyeing additional gains.

Taking a quick step back, calls are trading at six times what's typically seen at this point in the day -- and are outpacing puts by a nearly 5-to-1 margin. Most active are HLF's March and May 60 calls, where a collective 20,881 contracts have changed hands. According to Trade-Alert, this is most likely a result of one trader rolling her long calls out to the May series, giving HLF a little more time to topple the round $60 mark.

Today's call-skewed session just echoes what's been seen in HLF's options pits. The stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR), for example, rests at 0.43, meaning near-the-money calls more than double puts. 

Specifically, peak call open interest of 17,478 contracts is found at HLF's March 55 strike. In the past 10 sessions alone, nearly 6,400 new positions have been initiated here -- the most of any HLF strike during this time frame.

Those currently purchasing HLF's near-term options are able to do so amid declining volatility expectations -- meaning they're able to do so at a relative bargain. Specifically, the stock's Schaeffer's Volatility Index (SVI) has dropped to 61% from 79% since Feb. 25 -- the session before Herbalife Ltd. unveiled earnings -- and now ranks below 62% of all comparable readings taken in the past year.

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