(NYSE:HLF) was basking in the optimistic limelight on Monday, as roughly 19,000 calls crossed the tape during the course of the session. This was more than double the security's average single-session call volume, and about triple the number of puts exchanged. Delving deeper into the data, it looks as though one speculator upped the bullish ante on his long November calls.
To be more specific, two blocks totaling 7,000 calls changed hands at the in-the-money November 45 strike for a bid price of $7.75 each, while a matching number of calls was simultaneously traded at the out-of-the-money November 50 strike for an average ask price of $5.43 apiece. Meanwhile, open interest declined at the former overnight but surged at the latter, indicating that the 45-strike calls were sold to close, and the 50-strike calls were bought to open. In other words, the trader likely used the proceeds from his call sales to buy the higher-strike calls in order to roll up
his longer-term bullish position.
In order to profit from his newly purchased calls, the trader needs HLF to muscle north of $55.43 (strike price plus the premium paid) by November expiration. This denotes an increase of 14.8% from the stock's current price at $48.30, as well as territory not surmounted on a daily closing basis since early May 2012. Also of note, the delta for these options is docked at 0.51, meaning they have a more than 1-in-2 chance of moving into the money ahead of the close on Nov. 15.
The nutritional supplement guru is used to upbeat attention from the options crowd, though. In fact, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 73,011 calls during the past 10 weeks, compared to just 30,022 puts. The resulting 50-day call/put volume ratio of 2.43 is just 3 percentage points shy of a 12-month acme, confirming speculators have been snapping up calls over puts
at a near annual-high pace in recent months.
From a technical standpoint, this confidence in Herbalife isn't unwarranted, given the stock's year-to-date gain of more than 46%. What's more, the shares have outperformed the broader S&P 500 Index
(INDEXSP:.INX) by more than 23 percentage points during the past 60 sessions. On the charts, the equity's recent pullback was contained by its 50-day moving average, which has served as a floor since late April.
This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.
Below, find some more great content from Schaeffer's Investment Research:
Are Expectations Too Low This Earnings Season?
Daily Game Plan – S&P Back to 1650
Trading 101: A Look Back at Semiconductors
No positions in stocks mentioned.