Ackman's Latest Swipe Draws Herbalife Ltd. (HLF) Put Buyers

Herbalife Ltd. (NYSE:HLF) options traders are eyeing an end-of-week slide

by Karee Venema

Published on Jul 14, 2016 at 2:16 PM
Updated on Jun 24, 2020 at 10:16 AM

Bill Ackman took to the airwaves to talk about what else but Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Herbalife Ltd. (NYSE:HLF). On the former -- which is in the C-suite spotlight today -- Ackman reiterated recent comments that it will not put its Bausch + Lomb division up for sale, saying it could become "an even more dominant part of the franchise." On HLF, meanwhile, Ackman said his Pershing Square Capital Management is still short HLF because the firm is in need of "material changes to its structure." And while HLF stock is seemingly brushing the activist investor off, options traders are calling for a sharp reversal by week's end.

Taking a quick step back, 7,602 HLF put options have changed hands today, versus 6,461 call options -- two times the expected intraday rate. Most active is the stock's July 59.50 put, where it seems safe to assume new positions are being purchased. In other words, speculative players are betting on HLF stock to fall further below $59.50 by Friday's close, when front-month options expire.

Today's put-skewed session is nothing new in HLF's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 2.27 ranks in the 76th annual percentile. Simply stated, puts have been bought to open over calls at a faster-than-usual clip.

While it's entirely possible some of this recent put buying could be at the hands of shareholders protecting paper profits, the skepticism toward HLF is seen elsewhere on the Street, as well. For starters, just two analysts cover the stock, and each have issued a lukewarm "hold" rating toward the shares. Plus, short interest accounts for a lofty 31.3% of HLF's available float, or 17.3 times the average daily pace of trading.

Technically, the shares of Herbalife Ltd. (NYSE:HLF) have surged nearly 41% since hitting an annual low of $42.26 in mid-February, last seen at $59.41. Meanwhile, although the stock sold off amid the broad-market post-"Brexit" bloodbath in late June, it found a foothold near $54 -- a 50% Fibonacci retracement of its Feb. 12 low and its May 6 12-month high of $66.26.

HLF daily chart

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