Shares of Herbalife (HLF, $76.14, up $1.31) jumped nearly 10% on Monday after getting a clean audit of its books. The company has been under major scrutiny all year long as a major hedge fund manager has accused them of being a pyramid scheme with faulty accounting issues.
The stock was halted in the final 45 minutes of trading just north of $70 and zoomed to a high of $77.29 when it reopened roughly 15 minutes later. Today, shares have reached a high of $78.50 but have pulled back on news that vitamins may not be all that good for you after all.
The Herbalife December 75 calls (HLF131221C00075000, $2.15, down $0.10) opened Monday at $1.42 and traded down to $1.09 before exploding to a high of $7.54 yesterday. Today, they have traded up to $4.35.
There could be a run to the mid-$80′s based on momentum and short covering but the vitamin debate has put a lid on today’s ceiling. We did some research on Herbalife last night and with no debt, we figured they might announce a massive stock buyback program while rates are low now that they have a clean bill of health. This would increase earnings and lower the float that could crush the short-sellers as over 30% of the float is sold short.
It will be an interesting story to watch between now and yearend.
As far as the market, trading has been choppy as Wall Street prepares for the next 24 hours of Fed news. We have been super busy today and we have a ton of updates on our current trades. We are in the process of winding down our remaining trades from October and November and we are building a few positions into January. Although we did take a new trade earlier this morning, we still want to be cautious as we wait for more definitive signs of the next trend.
We should get more clues this week as volatility explodes and then, possibly, settles back down.
As we head into the second of trading, the Dow is down 23 points to 15,860 while the S&P 500 is lower by 6 points to 1,780. The Nasdaq is declining 3 points to 4,027 and the Russell 2000 is off 5 points to 1,115 and has traded in the red all session long. The S&P Volatility Index ($VIX, 16.17, up 0.14) is up slightly and has kissed 16.67.
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