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.