Is Herbalife getting ready to run?

By David Russell,

Shutterstock photo

Herbalife has spent almost two months in a quiet trading range, but one investor is looking for the stock to wake up.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 4,000 May 67.50 calls for $7.60 and the sale of a similar number of May 77.50 calls for $2.85. Volume was more than triple the previous open interest in each strike, indicating that new positions were implemented.

The trade cost $4.75 and will inflate to $10 if HLF closes at $77.50 or higher on expiration. That would be profit of 110 percent from a move of about 12 percent in the underlying share price. (See our Education section for more on the strategy, which is known as a bullish call spread .)

HLF is up 4.45 percent to $68.30 in afternoon trading. The weight-loss products company hit an all-time high above $83 early this year, only to fall on worries about its direct-selling method.

Herbalife has reported consistently strong results thanks to growth overseas, despite being targeted by short-seller Bill Ackman. It's also managed to remain above its 200-day moving average since pulling back, which could make some chart watchers believe that it remains in an uptrend.

Total option volume is triple the daily average in HLF so far today, according to the Heat Seeker.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: HLF

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