Herbalife Ltd. (HLF) Options Bears React to Icahn Rumors

Speculation is swirling that Carl Icahn may or may not be paring his stake in Herbalife Ltd. (NYSE:HLF)

by Karee Venema

Published on Aug 24, 2016 at 1:57 PM

Herbalife Ltd. (NYSE:HLF) has explored both sides of breakeven today, amid unconfirmed rumors that activist investor Carl Icahn is cutting his stake in the nutritional supplements firm. While it appears this speculation has since been quashed, HLF stock was last seen down 2% at $62.28. Plus, put volume has popped to two times what's typically seen at this point in the day, with a number of options bears bracing for additional HLF losses in the near term.

By the numbers, around 10,000 HLF put options are on the tape, compared to about 2,300 call options. Most active is the stock's September 60 put, where it seems safe to assume new positions are being purchased. If this is the case, the put buyers expect HLF stock to breach the round $60 level by the close on Friday, Sept. 16 -- when front-month options expire.

Today's accelerated put activity is nothing new in HLF's options pits, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 2.10 ranks in the 72nd annual percentile. In other words, puts have been bought to open over calls at a faster-than-usual clip of late.

Echoing this is the equity's top-heavy front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.61. What this shows is that near-the-money puts almost triple calls among options residing in the monthly September series.

Meanwhile, those currently purchasing HLF's near-term options are in luck. In fact, the security's Schaeffer's Volatility Index (SVI) is docked at an annual low of 27%, meaning extremely low volatility expectations are baked into premium on the stock's short-term options.

Technically, Herbalife Ltd. (NYSE:HLF) has been bouncing higher since bottoming at an annual low of $42.26 in mid-February, up 47%. More recently, the stock has been pulling back since gapping to a two-year peak on July 15 on the back of a favorable court ruling, but seems to have found a foothold atop its 80-day moving average.

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