New Year pop coming for Herbalife?


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Someone apparently thinks that Herbalife will have a very Happy New Year.

optionMONSTER's Heat Seeker detected the purchase of 10,000 January 80 calls for $1.82 and $1.83. Volume surpassed previous open interest of 6,627 contracts, which indicates that new money was put to work.

These long calls lock in the price where the weight-loss company can be bought, letting investors cheaply position for a rally. The contracts also have the potential to generate significant leverage from a modest move in the underlying stock.

The activity is especially noteworthy because HLF has never traded over $75, much less $80. This way the investor won't miss a breakout into new record territory while limiting the amount of capital at risk if it drops. (See our Education section)

HLF is down 1.15 percent to $69.74 in afternoon trading but has more than doubled so far this year. It's benefited from strong earnings, especially overseas, as obesity sweeps the globe. But even more important was the massive short bet placed by Bill Ackman, which resulted in a famous conflict with Carl Icahn. (See Jon Najarian's man-on-the-scene narrative for more.)

Short interest is still a hefty 29 percent of the float, so today's paper could possibly be the work of bears looking to hedge that upside risk.

Total option volume is almost triple the daily average, with calls outnumbering puts by a bullish 4-to-1 ratio.

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

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