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Bulls Look for Herbalife to Bounce

David Russell|Writer, OptionMonster
Friday, 28 Sep 2012 | 6:12 AM ET

Herbalife has been at the woodshed since April, but yesterday the bulls stepped in.

OptionMonster’s tracking programs detected a surge of activity in the October 52.50 calls, with buyers paying $0.50 to $0.60 early in the session. Almost 11,960 traded in total, compared with previous open interest of 1,147 contracts.

Calls lock in the price investors must pay to buy shares, so they can generate some nice leverage in the event of a rally. That’s exactly what happened, and those calls more than doubled to over $1.30 later in yesterday’s session.

Herbalife shares closed at $47.01, up 4.35 percent. The distributor of weight-loss products had peaked over $70 in the spring, but cratered after hedge-fund manager David Einhorn raised questions about its franchisee relationships. (Read More: Herbalife Shares Tank On Short-Seller’s Comment.)

The stock continued to fall despite quarterly results beating expectations in late July. Short interest is also 13 percent of the float, which could draw some buyers to the name.

Overall option volume was 11 times greater than average in the session, with calls accounting for more than 80 percent of the total.

—By CNBC Contributor David Russell

Additional News: Herbalife CEO: We’re Not a Pyramid Scheme

Additional Views: Reasons to Worry About Herbalife: Greenberg

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David Russell is a reporter and writer for OptionMonster. Russell has no positions in HLF.

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