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Herbalife Spikes To Record High On Bass Bullishness And Icahn's "No Sale"

Tyler Durden's picture


Following Kyle Bass' earlier comments on Herbalife's ability to tap the capital markets for a major buyback:


an HLF spokesperson has noted that Carl Icahn will not be selling (following the stock's close above a key level that enables him to sell). This has sent the stock to $77.39 - an all-time high.


We can only imagine how Ackman feels as day after day of theta is sucked out of his puts...



As D.A.Davidson Analyst Tim Ramey notes:

Icahn’s lockup provision was to expire Feb. 28, 2014, or upon 5-day VWAP reaching $73 or more
Icahn subject to other insider trading restrictions; he can’t buy/sell in windows that are closed to insiders, such as if HLF was working on deal or had info about audit status

Finally, while the market was initially amused by Ackman's conversion of 40% of his equity short into puts in early October, we made it quite clear it would achieve nothing simply based on his technical exposre. To wit: "instead of doing the right thing and slowly but surely bailing on the entire losing trade, and admitting defeat (as he did in JCP, as he will ultimately do here as well, but only after even more booked losses - he still has a massive 60% of his original short in the name) he has decided to double down and go the levered, option rout. Only this time with time-decay, by buying puts. So while before Ackman may "not have been wrong, just very early", as of this moment the time of his trade is really going to start hurting him as every passing day that the trade doesn't work out results in a drop in the put value, and also in total margin value available to Pershing Square."..."having "only" 60% of your original short remaining does not in any way make the ongoing squeeze and future margin calls any less likely; it only means those who are eager to crush the residual short shares will double down: because in addition to Ackman there are millions of other shorted shares who will take the cue and scramble to cover next)"

And some annotated thoughts:

In order to mitigate the risk of further mark-to-market losses on Herbalife, in recent weeks we have restructured the position by reducing our short equity position by more than 40% and replacing it with long-term derivatives, principally over-the-counter put options. The restructuring of the position preserves our opportunity for profit – if the Company fails within a reasonable time frame we will make a similar amount of profit as if we had maintained the entire initial short position – while mitigating the risk of further substantial mark-to-market losses – because our exposure on the put options is limited to the total premium paid. In restructuring the position, we have also reduced the amount of capital consumed by the investment from 16% to 12% of our funds.


ZH - in other words, your prime brokers tapped you on the shoulder. The share price has doubled during the period of your covering 40% of your short - how about the other 60%? Is your prime broker increasing haircuts on that? Adding puts won't help - now your capital is bleeding away every day as theta eats into it - limited risk (but still 100% of the capital in the puts), with guaranteed bleed. Will the proceeds from the puts also go to charity? Or will the LPs finally ask who is footing the losses? Also, we eagerly await the confirmation of this note: surely the reported Short Interest will tumble any second...

And furthermore:

The biggest risk of the restructured position is that time begins to be a factor with respect to a portion of our investment. We believe, however, that the long-term nature of the options we own will provide sufficient time for us to be rewarded on this portion of our position. In that the options are privately negotiated, over-the-counter contracts, we have the ability to extend their terms, if we deem it prudent and attractive to do so in the future.


At yesterday’s closing price of $72.84, we believe the potential reward from being short Herbalife is extremely attractive relative to the risk of loss. Using the average analysts’ price target of $77 per share – which assumes that the Company is operating entirely legally – investors have less than 6% upside compared with 100% downside if the Company is determined to be a pyramid scheme by regulators.


In my career, I have not seen a less attractive risk-reward ratio than a long investment in Herbalife common stock at current levels.


ZH - with trades like this, which has now become an ideological obsession and moved beyond and semblance of rational investing (any normal person would have pulled the plug on the nearly half a billion dollar losing trade long ago) and is rapidly morphing into a replica of Pershing Square IV, said career may not be too long. Especially since it is now that the upside/downside analysis in a long trade like JCP that actually does make sense. Remember JCP?

Well, Ackman's put trade has been profitable for at least one entity - the one who sold him the puts.


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Thu, 12/05/2013 - 15:56 | Link to Comment Mark Carney
Mark Carney's picture

OT: but I wonder what this means?? No stop loss allowed, lol? something about to go down?


At Scotia iTRADE, we always strive to inform you about regulatory changes that may affect your trading. The Investment Industry Regulatory Organization of Canada (IIROC) has issued a Rules Notice - Guidance Note to all online brokerages on the use of Stop Market orders. The guidance, which is intended to protect market integrity, impacts Canadian-listed securities only.

Effective December 7, 2013, Scotia iTRADE will no longer accept Stop Market orders on any of its trading platforms for Canadian-listed symbols. Your existing orders will remain in force until executed, cancelled, or expire on the date selected. To manage and view your existing orders, visit View Orders under the Trade tab. We will continue to support all other order types, such as Market order, Limit order, Stop Limit and Trailing Stop orders, across all of our trading platforms.

Thu, 12/05/2013 - 15:56 | Link to Comment Ruffcut
Ruffcut's picture

fuck bass and icahn and this multilevel marketing bullshit, like its gold. Just more fuckng ponzi horseshit.

I guess better ponzi gets a bigger credit limit. What a clusterfuck pile of shit.

Thu, 12/05/2013 - 15:56 | Link to Comment knukles
knukles's picture

Oh yeah.
Well before I stayed at a Holiday Inn last night I spent 3 months with Onyango Obama.
I think.
But I don't remember.

Thu, 12/05/2013 - 16:30 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Dear Mr. Ackman, when you are taking it up the ass from Wall Street take it like a man.  Take your loss in honor. Idiot!

Thu, 12/05/2013 - 16:21 | Link to Comment slotmouth
slotmouth's picture

How great would it be if the government shutdown Herbalife the day after his options expire?

Thu, 12/05/2013 - 15:56 | Link to Comment 666
666's picture

Ponzi is as Ponzi does.

Thu, 12/05/2013 - 15:56 | Link to Comment fonzannoon
fonzannoon's picture

Kyle Bass has become a herbalife/gm pumping bull retard fighting for bull retard headlines with Hendry. 

It's all Michael Burry now. When does he disclose his momo retard portfolio?

Thu, 12/05/2013 - 22:30 | Link to Comment tarsubil
tarsubil's picture

Kyle Bass is dead to me.

Still have never seen any Herbalife product in real life and don't know anyone that has.

Thu, 12/05/2013 - 15:56 | Link to Comment NeedleDickTheBu...
NeedleDickTheBugFucker's picture

Yes, Ackman is an arrogant prick who got totally bitch-slapped by Ichan et al.  That being said, there is no way in hell I would touch HLF (or NFLX, TWTR, FB, TSLA, etc.).

Thu, 12/05/2013 - 16:06 | Link to Comment frankTHE COIN
frankTHE COIN's picture

Ack, Ack guns usually do the shooting. But these boys are blowing him out of the water.

Thu, 12/05/2013 - 16:15 | Link to Comment Derf Scratch
Derf Scratch's picture

just a young Ashkenazim learning from the master thief... Ackman has many years left to hone his craft

Thu, 12/05/2013 - 15:57 | Link to Comment Grande Tetons
Grande Tetons's picture

We can only imagine how Ackman feels as day after day of theta is sucked out of his puts.

He feels like this,

Thu, 12/05/2013 - 15:58 | Link to Comment wallstreetapost...
wallstreetaposteriori's picture

2013 = the year dumb money won

Thu, 12/05/2013 - 16:06 | Link to Comment Theta_Burn
Theta_Burn's picture

Ackman feeling the burn...and yes, suck it does literally and figuratively.

Thu, 12/05/2013 - 16:01 | Link to Comment cougar_w
cougar_w's picture

What does any of this have to do with fish?


Thu, 12/05/2013 - 16:13 | Link to Comment knukles
knukles's picture

It's what the French smell like so it's got to be good.
I think.
That or Onyango Obama's sheets need changing from Barry's residency.
Or am I confusing the important shit of the day just before I have my afternoon melt down?
But more to the point, Obie said yesterday that there was disparate income inequality here abouts in this land of the free and home of the brave, yesterday.
So what's this shit just passed congress that applies to all the fuckers in this clusterreacharound that they still get to be taxed at a capital gains rate rather than ordinary income?
Oh, you think its because of campaign don-a-fucking-nations, no?
Fuck No!
It's because they earned it, by manufacturing fucking paper wealth out of paper financial engineering benefiting nobody but the beneficiaries of paper shuffling on Wall Street , the shit and all the whole shit in illegal fucking scams of insider dealings, securities price manipulation, disclosure rules violations, whateverthefuckyopucanimagine.
Fuck yeah, let's have another fucking speech from Dear Leader to obviate the obvious that the whole fucking thing is melting right before our eyes and maybe we can pretend that alls normal before our evening ememas just after dinner for dessert, for Christs Fucking Sake, you motherfuckers!!!!!

Just Die You Fuckers!

Do something good for your fellow man before you go to hell.
Disembowel yourselves on live television.

Die, you Fuckers.
Just die.


Thu, 12/05/2013 - 16:07 | Link to Comment 101 years and c...
101 years and counting's picture

almost as funny as all of you that keep buying gold and silver as the bubble continues to deflate.  just look at a monthly chart of them and you may finally get it???

Thu, 12/05/2013 - 16:10 | Link to Comment Haager
Haager's picture

And it's of course not the case that some big, overleveraged market-players are closing positions to get value back into the books - due to some 'stress-tests'...

Thu, 12/05/2013 - 21:07 | Link to Comment notquantumdum
notquantumdum's picture

Are we really sure Ackman is losing theta every day?  ['As well as presumably alpha and maybe beta also?]

The article doesn't appear to explicitly say that Ackman is ONLY long puts, in HLF.

I trade puts and hold them for longer periods of time quite frequently, and I almost never lose theta [net].

If one shorts a number of short-expiration out-of-the-money puts, while simultaneously going long deep-in-the-money puts which are medium-term-to-expiration and going long out-of-the-money puts which are a long-term-until-expiration [all on the same underlying equity]; it is possible to set up an options combination in which the short put position will lose more dollars worth of theta every day [gaining more money for those who shorted it] than the two long positions will [lose for those who bought them long].  Plus, due to the out-of-the-money long-term-to-expiration puts, one's profits can remain somewhat theoretically unlimited (with a limited loss potential) despite selling some of the puts (unlike what would be the case with a simple bear-put-spread which would have a fixed profit and loss potential).  One should short and go long the same number of contracts in all three positions (short-term, medium-term, and long-term), so that one is long twice as many put contracts as one is short, when using this kind of strategy.

This combination [rather quickly] starts losing its protection against time-decay losses if the underlying equity rallies in price, but then one should expect a bear-put position to move against them anyway in that situation.  As the underlying equity price sells-off the protection against time-decay increases, and you can actually start making a significant amount of money just from the shorts decaying faster than the long positions.

This strategy does require somewhat daily monitoring and periodic adjustment, however.  If your short position expires (as it will before your longs), you need to short another group of puts or roll-out of your long puts.  There are other things you will want to adjust for, as well, if you want to maximize your profits (and minimize your losses  -- that is the game, after-all).

It has also been quite perilous to try to bet on any equity price going lower lately, presumably due to Fed bond-buying, as ZH frequently observes.  However, I just closed out a trade for a nice profit using this type of combination for TSLA (luckily a few days before its recent rally began), so it can be done successfully, even in this market.  It helps if you only do it with moon-shots which have already started to crash as was the case with TSLA when I opened my bear-put combination on it.  'Just looked at the chart again . . . is it time to open the same kind of bear-put position on TSLA, again?  'Not sure.  [But tempting, maybe ? . . .]

I still have such a put combination on SPY as a hedge against my other long equity positions.  This position has been smokin' [at least lately].  I should paper-profit about 0.88% of my total SPY put position today-alone (if the underlying stays flat at the close for today) due merely to the shorts decaying so much more quickly as they approach expiration, than the longs.  [Post-close note --  it apparently will have done even better than that with the lower close in SPY today, due only to time-decay GAINS, excluding the gains [if only momentary, short-term] from the long puts going up in value due to the move down in SPY price.]

'Calendars, baby!  It's all about calendars.

But BEWARE!  Most people lose their A$$es trading options due to ignorance, inattentiveness, or some combination of both.  Get educated and pay attention, or don't trade options!!!

Good luck.

Thu, 12/05/2013 - 17:19 | Link to Comment Kreditanstalt
Kreditanstalt's picture

Herbalife is - SHOULD be - junk.  But Ackman made the mistake of making sensible bets based on fundamentals - in a 100% manipulated economy.


Ackman should stand pat - if he can.  This stock is a poster child for the leveraged, Fed-backed market.  THE MINUTE bond rates begin to rise, stocks fail to make gains over a couple of weeks or more, PMs rise, credit contracts and governments begin to talk about deficits it will be lights out for Herbalife.

Thu, 12/05/2013 - 17:34 | Link to Comment B.J. Worthy
B.J. Worthy's picture

More like Perishing Square amirite?

Thu, 12/05/2013 - 18:44 | Link to Comment Disenchanted
Disenchanted's picture

re: "HLF spokesperson has noted that Carl Icahn will not be selling"

= Carl's selling like a motherfucker bitchez...

Thu, 12/05/2013 - 19:02 | Link to Comment Made in Occupie...
Made in Occupied America's picture


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