Today, we’re recommending a new bearish trade on Herbalife Ltd. (NYSE:HLF). Herbalife sent a promotional press release last week about the CEO’s purchase of more shares. Aimed at boosting confidence in the stock (which probably worked for a few days), the report may not really be all that it is cracked up to be.
The CEO of Herbalife did exercise a bunch of 11-year-old options that were going to expire this month. He “promised” to not sell the shares (minus those used to cover the cost of exercise) because he had confidence in the company.
That is all fine, and we would hope that the CEO has confidence in the company he runs, but this isn’t a binding contract or anything. Selling his Herbalife shares now would be perfectly legal unless there is something going on that he isn’t telling shareholders. Not selling now is also fine. He could still sell in the short term and not be breaking any laws.
The question is why is Herbalife trying to make press based on the non-operating, non-binding investing decisions of its CEO? While it’s not a guarantee, we think this is an effort to distract traders from the serious problems facing the company. Restatements, downgrades or warnings from Herbalife in the near term are not unlikely, and we think investors are going to want to take their profits from the last few weeks of positive movement. Resistance is in play, and we think this could be an interesting opportunity to profit in the short term.
‘Buy to open’ the HLF January 40 Puts (HLF150117P00040000) for a maximum price of $3.45.
Also, for those who followed our MasterCard (MA) trade we provided last week, closing at current levels around $2.70 should get you about 35% to 40% profits depending on your entry point. A nice trade that took about a week to wrap up.
John Jagerson and Wade Hansen are the editors of SlingShot Trader, helping investors capture options profits trading the news by using a proprietary 100% news-driven trading platform that turns event-driven pricing inefficiencies into fast profits. Get in on the next trade and get 1 free month today.
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