Dan Loeb Exit Redux Caps A Rough Eight Days for Herbalife that Bears Well-Anticipated

(This is an excerpt from an article I originally published on Seeking Alpha on January 26, 2014. Click here to read the entire piece.)

It has been eight months since I exited my long position in Herbalife (HLF), but the story continues to fascinate me. This time around, bad news came in rapid sequence for HLF. Interestingly enough, like 2012, a good number of bears well-anticipated the carnage. I will start with the options action.

{snip}


The put/call ratio still has a knack for rising ahead of swoons in HLF stock
The put/call ratio still has a knack for rising ahead of swoons in HLF stock

Source: Schaeffer’s Investment Research

One of these days, I will notice one of these spikes in the open interest put/call ratio ahead of a fresh stock swoon…

{snip}

Put buyers surely cashed in handsomely as the stock has fallen 26% in seven trading days. Note that the biggest drop in the open interest put/call ratio came AHEAD of the Markey press release: from 1.13 on Jan 17 to 0.77 on Jan 21. The ratio has held relatively steady since.


Herbalife swoons in the wake of multiple bad headlines
Herbalife swoons in the wake of multiple bad headlines

Source: FreeStockCharts.com

When the latest data is released on short interest, I will be interested to see whether there is a renewed interest in shorting HLF. Ever since Ackman backed out (and converted) about 40% of his position late last year, short interest has remained flat.


Herbalife short interest has remained static for several months
Herbalife short interest has remained static for several months

Source: Schaeffer’s Investment Research

The bad week+ was appropriately capped with after hours news of an SEC Schedule 13G filing indicating Dan Loeb had dumped his entire position. It turns out this is likely old news. {snip}

I am not sure why there was such a time lag in filing the 13G, but I am guessing news of the filing could add enough incremental angst in HLF to punch it through the 200-day moving average shown above for a retest of the breakout point around $56.50.

I still think HLF is more of a trading stock than investable one. Paying attention to signals from options trading and short interest seem to provide sufficient guidance to future headlines.

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on January 26, 2014. Click here to read the entire piece.)

Full disclosure: no positions

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