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Herbalife Provides Unique Options Strategy

18 January 2019 No Comment

Ever since the company was first founded more than 30 years ago, Herbalife’s business model has continued to be one that has fascinated investors. The company has been very well known for producing a wide variety of health products, which are then sold through a vast network of salesman across the world. The company has also gone public and today is traded on the NYSE under the ticker symbol HLF.

For those that are interested in investing in Herbalife, there are a variety of unique investment options available. Recently, many investors were intrigued by new options contracts that were made available for the company’s stocks. In December 2018, investors saw the August 2019 options contracts for the first time and many people believed that there was a lot of value in these contracts.

One of the most interesting contracts that investors saw was a put option contract. The current put option contract had a strike price of $57.50 per share with a cost of $4.60 per share. With a put option, you have the chance of selling the stock at $57.50 per share at some point in the future before the August 2019 expiration date. To purchase this contract, it would cost you the $4.60 per share fee. Overally, this means that in order for it to be a profitable trade, the share price of Herbalife would have to decline $52.90 per share.

Another option that someone would have would be to sell the contract to the open market. In this scenario, you would be able to initially make money of $4.60 per share. However, you are taking on a lot of risk. If the share price of HLF was to decline by a significant amount, those that sold the contract would be very exposed. Because of this, many investors end up completing a straddle strategy that will work to limit their downside risk.

While there are good put options available for Herbalife, there are also some good call options available as well. If you believe that the price of HLF will increase in the future, purchasing a call option contract is a good option. One of the most intriguing call options that investors are focused on today is the $60.00 per share call, which has a cost of $5.15 per share. For this to be a smart trade, the stock will have to increase to about $65 per share.

For investors looking to buy options of HLF or any other stock, it is important to understand how options work and what the risks are. With options, you are given the ability to buy a contract that will let you purchase or sell shares in the future. The cost of this contract will vary based on many factors including how out of money the share price is, what the volatility has been for the stock over the past few months, and the amount of time until the expiration. With these new contracts fro HLF, there is a lot of potential to see the stock move in one direction.

In January 2019, shares of Herbalife are trading for nearly $60 per share. This comes after a very good year for the company in which shares started 2018 at only around $35 per share. While many publicly traded companies saw a big decline in share value in December 2018, shares of HLF actually remained flat. This shows that there is a lot of potential for further growth if the stock market as a whole is to rebound from the 2018 losses.

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