) was basking in the optimistic limelight on Monday, as roughly
19,000 calls crossed the tape during the course of the session.
This was more than double the security's average single-session
call volume, and about triple the number of puts exchanged. Delving
deeper into the data, it looks as though one speculator upped the
bullish ante on his long November calls.
To be more specific, two blocks totaling 7,000 calls changed hands
at the in-the-money November 45 strike for a bid price of $7.75
each, while a matching number of calls was simultaneously traded at
the out-of-the-money November 50 strike for an average ask price of
$5.43 apiece. Meanwhile, open interest declined at the former
overnight but surged at the latter, indicating that the 45-strike
calls were sold to close, and the 50-strike calls were bought to
open. In other words, the trader likely used the proceeds from his
call sales to buy the higher-strike calls in order to
his longer-term bullish position.
In order to profit from his newly purchased calls, the trader needs
HLF to muscle north of $55.43 (strike price plus the premium paid)
by November expiration. This denotes an increase of 14.8% from the
stock's current price at $48.30, as well as territory not
surmounted on a daily closing basis since early May 2012. Also of
note, the delta for these options is docked at 0.51, meaning they
have a more than 1-in-2 chance of moving into the money ahead of
the close on Nov. 15.
The nutritional supplement guru is used to upbeat attention from
the options crowd, though. In fact, traders on the International
Securities Exchange (ISE), Chicago Board Options Exchange (
), and NASDAQ OMX PHLX (PHLX) have bought to open 73,011 calls
during the past 10 weeks, compared to just 30,022 puts. The
resulting 50-day call/put volume ratio of 2.43 is just 3 percentage
points shy of a 12-month acme, confirming speculators have been
calls over puts
at a near annual-high pace in recent months.
From a technical standpoint, this confidence in Herbalife isn't
unwarranted, given the stock's year-to-date gain of more than 46%.
What's more, the shares have outperformed the broader
S&P 500 Index
(INDEXSP:.INX) by more than 23 percentage points during the past 60
sessions. On the charts, the equity's recent pullback was contained
by its 50-day moving average, which has served as a floor since
This article by Terri Stridsberg was originally published on
Schaeffer's Investment Research
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