Herbalife Ltd. (HLF) Options Hot as Traders Ponder Conflicting Reports

Herbalife Ltd.'s (NYSE:HLF) options pits heated up on conflicting reports on a settlement with the FTC

May 24, 2016 at 3:51 PM
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Herbalife Ltd. (NYSE:HLF) surged as much as 8.5% earlier, due to a report in The New York Post saying the company may have reached an agreement with the Federal Trade Commission (FTC) that would settle a long-standing probe into HLF's business model. But at $62.20, the stock has pared its gains to 4.7%, after a source close to the matter shed doubt on the deal, according to a later report from CNBC. In either case, HLF's options are hot today, crossing at three times their usual intraday rate.

At last check, HLF calls are outnumbering puts, and most active today is HLF's weekly 5/27 70-strike call, where it looks like some traders are buying to open new positions. Buyers of this call are looking for HLF to rally above $70 -- territory not seen in more than two years -- before the close this Friday, when the weekly series expires.

Today's preference for calls is a change of pace for the stock, though. Over the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.18 HLF puts for each call -- a ratio in the 78th percentile of its annual range.

And this pessimism is echoed outside of the options pits, where short interest represents more than 35% of HLF's total available float. At the equity's average pace of trading, it would take nearly four weeks for short sellers to cover their positions.

On the charts, Herbalife Ltd. (NYSE:HLF) has added 48% since hitting an annual low of $42.26 in mid-February. Plus, the shares appear to have found support in the form of their rising 60-day moving average, as well as the $58-$60 region, which caused trouble for HLF through much of late 2015. Should the stock continue its strong performance, an unwinding of bearish sentiment could send it back toward its recent multi-year highs.

Daily Chart of HLF May 24_

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