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Ackman's potential loss during Herbalife presentation

Pershing Square Capital Management CEO Bill Ackman speaks during an event in New York.
Jin Lee | Bloomberg | Getty Images
Pershing Square Capital Management CEO Bill Ackman speaks during an event in New York.

After sinking as Bill Ackman promised CNBC viewers he would deal a "death blow" to the company, Herbalife shares surged during his actual presentation. And that may have cost the head of Pershing Square Capital Management up to $70 million in paper losses on Herbalife options alone.

Ackman's position in Herbalife is often referred to as a short position, but at this point, it is just as much an options position. In October, the fund manager announced that he was converting 40 percent of his $1 billion short position into long-term put options. Puts, which grant their owner the right (but not the obligation) to sell shares for a given price at a given time, rise in value as a stock falls.

Read MoreFormer Herbalife analyst accuses Bill Ackman of lying during presentation

As a stock rises, however, the price of put options plummets. While Ackman has never laid out the details of his options positions, many derivatives experts say he likely owns the vast majority of the 50-strike, 60-strike, and 65-strike Herbalife options that expire in January. And on Tuesday, those options lost as much as $70 million on paper, all-told. The greatest percentage loss was in the January 65-strike puts, which lost more than 40 percent of their value in one session. Multiplying that $7 loss by the open interest of 30,000, the combined holders of that option alone lost more than $20 million just on that line of options.


"Are these options all owned by Ackman? Probably not, buy I'm guessing a good percentage of them are," commented options expert Michael Khouw of Dash Financial.

Now, most of the options that Ackman is actually holding are likely not publicly traded—he announced in October that he was buying over-the-counter put options, meaning that they were privately negotiated. However, the seller of those options likely went out into the options market to buy puts in order to hedge their risk. That would explain the strongly elevated open interest in the Herbalife put options. And regardless of the specific terms of the over-the-counter deal, the decline in prices clearly indicate that Ackman's position has lost a good deal of value.

Read More Ackman clients shrug off failed Herbalife 'death blow'

In fact, in response to Ackman's presentation on Tuesday, a day after his CNBC appearance, Herbalife directly referred to those January options.

"We recognize that he is running out of time to make good on his bad bet against Herbalife, with the equivalent of 25.7 million shares in put options that expire on January 17, 2015. Today is evidence that Bill Ackman will not succeed," the company wrote.

Read MorePoll: Is Bill Ackman on the wrong side of the Herbalife trade?

The jury may still be out on that. But options do generally lose value over time, as the chance of a stock making a big move declines. And what is clear is that on paper, at least, Ackman's losses on Herbalife are piling up, with the 50-strike, 55-strike, 60-strike and 65-strike puts all trading at their lowest levels ever, even as the stock is substantially lower on the year.

Of course, none of this is likely to dissuade the investor.

"I'm an extremely, extremely persistent person," Ackman said in his presentation. "Extremely."

—By CNBC's Alex Rosenberg.

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