Herbalife Ltd. (NYSE:HLF)‘s options trading witnessed unusual activity last Friday. The speculation on the street is that activist investor Bill Ackman is rolling over his shorts on Herbalife Ltd. (NYSE:HLF), buying some more time. The premium paid in the Herbalife Ltd. (NYSE:HLF)’s option trade is estimated to be $50 million, making it clear that whomsoever is behind the trade is betting big on Herbalife Ltd. (NYSE:HLF)’s stock crashing down in the next few months. Melissa Lee discussed the massive Herbalife Ltd. (NYSE:HLF) trade with Dan Nathan on CNBC recently.
” […] $50 million in premium, this is a $4.5 billion market cap company, we know that he [Bill Ackman] is a large part of the short interest, which is probably about 40%. So, his case is very well known, he thinks that the company is a zero and I am going to break down the trade to you and tell you why he is doubling down in certain ways at least on his options positions that are in the listed market […],” Nathan said.
Nathan mentioned that after Herbalife Ltd. (NYSE:HLF)’s stock made its all time high earlier this year, there was a purchase of 45,000 Herbalife Ltd. (NYSE:HLF)’s January 2015 expiry puts at $7.20, out of which 28,000 got sold last Friday. According to Nathan, this $50 million trade is from Ackman, who is rolling his positions. The position consists of 32,000 quantities of Herbalife Ltd. (NYSE:HLF)’s January 2016 expiry $50 expiry puts.
“If you think about it, you take this strike which is $50, less than $15, you break-even at $35, that’s considerably lower than here. Now, you think about it, you would only do this, if you thought this stock was going to low single digits because a 2 to 1 risk reward. Risking $50 to maybe make $35, is not fantastic. How many of stocks really go to 0? so the guy is making, if it is him, a much more convicted view now at $50, than he did at $70, at least on the portion that is on the listed market […],” Nathan added.
As of June 30, 2014, billionaire George Soros‘ Soros Fund Management owns 4.73 million shares in Herbalife Ltd. (NYSE:HLF), making it one of the largest shareholders of the company.