Herbalife Ltd. (HLF) is a nutrition company that sells weight management, targeted nutritional products, and personal care products worldwide. HLF has been one of the most debated stocks in the market over the past year. The debate centers on claims by activist investor Bill Ackman that HLF’s operations fit the definition of a pyramid scheme. Ackman announced a large short position in the stock with a price target of zero. Activist investor Carl Ichan then announce he was taking a large stake in the company and since then the two have battled it out on CNBC on a few occasions. I don’t know what the future holds for HLF but on the announcement of a civil probe by the Federal Trade Commission into the company’s operations the stock has plummeted. Today a trader bought 1,700 HLF April 47.5 Puts for $2.49 indicating they belive the stock will head lower. Let’s breakdown this trade, this trader has the right but not obligation to sell 170,000 shares of stock at $47.50 and is paying around $300,000 for this right. With a breakeven of around $45.00 this trader is thinking the stocks tests at least that low.
