Herbalife (HLF) - Short Seller Smashes Stock Again; But Reaction to Ackman is Different than Einhorn

HLF is trading $27.49, down 18.4% with IV30™ up 67.3%. The LIVEVOL® Pro Summary is below.



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Herbalife Ltd. is a global network marketing company that sells weight management, nutritional supplements, energy, sports and fitness products and personal care products through a network of approximately 2.7 million independent distributors, except in China, where the Company sells its products through retail stores.

So this is obviously a stock and vol note. In fact, this is day two of a cataclysmic decline in stock price and rise in vol for HLF and is all based on comments made by noted short seller Bill Ackman.

I've included the Symbol Summary for HLF as of three days ago, then yesterday, then today one more time, below:









So, the stock has dropped from $42.50 to now $27.49 in four days as the implied has exploded from ~52% to now ~150%. In terms of the content behind Ackman's analysis, I suggest reading the two posts below -- it's pretty nasty but feels very factual. Both of these articles are provided by The Motley Fool.

Bill Ackman's Analysis on Herbalife (Part I)

Bill Ackman's Analysis on Herbalife (Part II)

Let's turn to the one-year Charts Tab below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see the abrupt drop of late, well into a new annual low and in fact, well into a new multi-year low. What I also note is that abrupt drop in early May -- the stock fell from $70.32 on 4-29-2012 to $46.20 just four days later. That drop was keyed off of questions from another noted short seller, David Einhorn. So, in English, this is the second time the stock has catapulted down after well known fund managers have questioned HLF's management. The issues have primarily been the distribution channel and pricing through that channel.

I do note that once the stock fell off of Einhorn's comments (or lack of comments?), the stock did not ever recover to pre-comment levels -- it has hovered at that lower level until... well until the last four days.

I've included the one-year vol chart below.



We can see this time that things are different. The stock decline for both has been ~35%, but the vol has absolutely exploded this time around. After Einhorn's comments the implied was just under 100% at its peak (closing value). Today we see an implied well over 150%.

Finally, let's tun to the Options Tab, below.



We can see the monthly vols are priced to 154.05%, 134.14% and 111.86% for Jan, Feb and May, respectively. While the option market obviously reflects higher vol in the near-term -- that vol is elevated well into May. This time around it feels like the option market reflects not just the risk of a downside move (further), but perhaps the risk of HLF going away as a going concern.

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NYSE Euronext (NYX) -- Unusual Trading in NYX Takeover and Potential Hidden Trades

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NYX is trading $32.01, up 33.10% with IV30™ down 13.3%.The LIVEVOL® Pro Summary is below.

NYSE Euronext is a global operator of financial markets and provider of trading solutions.

I found NYX because of the price gain which ultimately is due to a much rumored takeover.  The news is that NYX will be purchased by Intercontinental Exchange for a stock and cash deal worth $8.2 billion

This deal has been on-again-off-again for more than a year with questions surrounding regulatory approval and the such.  I mention the length of time these rumors have swirled because there may be suspect activity that had taken place.

Let’s start with the Options Tab, below.

I have highlighted the Jan 24 calls – note the OI of 10,343 contracts. I have included the Options Tab from 12-6-2012 below to begin the discussion.



Note that the OI on 12-6-2012 was just 1,214, but 2,525 calls traded on that day. To make a long story short, I have included a chart of the Jan 24 calls OI with dates highlighted to focus the analysis.



What we can see is that starting on 12-6-2012 and moving to 12-17-2012, the OI started gapping up. It moved from what was a steady 1,124 to now over 10,000 in less than two weeks. And, what do you know, three days after the last bulk of ATM option purchases, the company announces its merger.

I see approximately ~9,000 calls purchased in that short window costing ~$0.60 (on average) that are now trading at ~$8.00, for a ~1,200% gain in fourteen calendar days. That’s about a $6.5 million gain. How fortunate…

Not convinced this is insider trading… That’s OK, there’s more… A lot more…

The largest OI in any call line in any month on any strike all the way out to the Jan 2015 options in NYX is in those Jan 2013 24 strike calls. Hmmm…

Even more interesting is how the position was accumulated. Rather than lifting offers, an astute trader bid up the calls and let those bids get hit. The purpose of this is two-fold:

1. Purchasing the calls for a slightly lower price
2. The trades look like sales since they trade on the bid

Want some evidence of this astute trading? Sure – here are the largest trades on 12-6-2012 in those calls.



Note the price was $0.40 for all of those trades and the NBBO reflected $0.40 x $0.41. So a sale right? Not quite. Below I have included a level II view of those options as they traded.



What we can see is that the NBBO was $0.37 x $0.41, but then a $0.40 bid for 1,224 contracts came in. That bid was hit, and got the initiator long while making the trades look like sales.

In my humble opinion, this is a dangerously suspicious case where insider information may have been used to create a windfall of wealth in two-weeks time.  More than that, there is “circumstantial evidence” of a trader trying to hide the trades.  That’s how a pro would do it – that’s how a pro sees it… and that’s what I fear has happened. Of course, suspicious trading is NOT evidence of malfeasance – sometimes suspicious trading is just good luck.

This is trade analysis, not a recommendation.

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The Options Trading World has Been Changed... Again -- Disruptive Technology Unveiled: Livevol® Execution is Here

While we believe this to be the most widely read options trading blog in the world, there's one thing I have never done for you -- the readers -- and that's talk about execution. We all know I post analysis and snapshots from LIVEVOL® Pro (LVP), after all, this is the Livevol® blog.

But aside from that, I believe that LVP is the best options trading analytics platform in the world -- I have used it to trade for years, including when I was a market maker on the NYSE ARCA options floor and well before I was affiliated with the company LIVEVOL® in any way.

Today, I believe LIVEVOL® has changed the trading world... again. Livevol® Execution (Livevol X) is now available to anyone.

We believe this to be one of those rare few moments when a new technology is introduced and is so disruptive, that it changes... everything.

Take all of the analytics and design of LVP and imagine that turned into a trading station that can flow onto multiple monitors, be broken down into single customizable elements and then add this:

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Wanna see LVX?... Give the eight minute movie below a watch. My best guess is, in eight minutes and thirty seconds, you'll be calling Livevol for more information (don't forget to tell them you found it through the blog). This trading application is incredible -- but you don't have to take my word for it, just take a look for yourself.

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Level 3 Comm (LVLT) - Calls Trade, Stock Spikes, But Vol Remains Depressed

LVLT is trading $23.17, up 6.7% with IV30™ up 12.8%. The LIVEVOL® Pro Summary is below.



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Level 3 Communications, Inc. (Level 3) is a facilities-based provider of a range of integrated communications services.

This is a vol and stock note along with some order flow.  Ultimately it's the recent move in the stock and the lack of a move in the vol that caught my eye.  More on that in a sec...

The company has traded over 17,000 contracts on total daily average option volume of just 1,278. Calls have traded on a 5:1 ratio to puts with the largest trades amounting to a Jan 22/Mar 24 call spread -- although I'm not sure the legs traded together. The Stats Tab and Today's biggest trades snapshots are included (below).





The Options Tab (below) illustrates that both the Jan 22 and Mar 24 calls are mostly opening (compare OI to trade size). Across the top I also note the vol increases by expiry, with Dec showing the largest rise on the day.



Finally, the Charts Tab (six months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see that abrupt upswing reversal since late Nov. On 11-27-2012 the stock closed at $18.19, so as of this writing it's up 27.4% in less than a month. The 52 wk range in stock price for LVLT is [$16.36, $27.99].

What really caught my eye in this name is the vol chart. I have included the one-year IV30™ chart below.



We can see that while the implied is popping today, it's still low relative to its own annual history. The 52 wk range in IV30™ is [36.05%, 60.07%], putting the current level in just the 21st percentile. I dunno, with a stock move up that abruptly in such a short period of time and large call spreads trading, at the very least an examination of the vol levels may be worthwhile.

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Riverbed (RVBD) - Vol Nears Annual Low

RVBD is trading $18.73, up 5.5% with IV30™ down 3.6%. The LIVEVOL® Pro Summary is below.



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Riverbed Technology, Inc. (Riverbed) has developed solutions to the fundamental problems associated with information technology (IT) performance across wide area networks (WANs).

I found this stock using a real-time custom scan. This one hunts for depressed vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200


The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The six-month RVBD Charts Tab is included (below). The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see that while the stock made a rather abrupt climb in the middle, ultimately, over the half year, the stock is almost unched. But again, I do note the gap up on earnings and gap down a few days after. The 52 wk range in stock price is [$13.30, $30.73].

In order to get a better feel for the IV30™, I've included a one-year chart with just that measure.



We can see that the implied is hovering near an annual low as the stock itself has found a kind of "quiet period." The 52 wk range in IV30™ is [39.44%, 91.99%], putting the current level in the 4th percentile.

Finally, let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 41.79%, 41.74% and 54.745 for Dec, Jan and Mar, respectively. The Mar expiry does have an earnings event embedded in it and thus the elevated vol. This one is compelling to me simply b/c of the depressed vol -- again, right now doesn't feel like an obvious time for vol to be at or near annual lows. Or... it does?...

This is trade analysis, not a recommendation.

Coca-Cola (CCE) - Elevated Vol in Dec and Depressed Earnings Vol Brings to Light Compelling Vol Diff

CCE is trading $31.00, down 0.4% with IV30™ down 2.4%. The LIVEVOL® Pro Summary is below.



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Coca-Cola Enterprises, Inc. (CCE) markets, produces, and distributes nonalcoholic beverages. The Company serves a market of approximately 170 million consumers throughout Belgium, continental France, Great Britain, Luxembourg, Monaco, the Netherlands, Norway, and Sweden.

This is a cool calendar spread note -- one which shows not just a vol diff, but one where earnings vol can be owned for less than non-earnings vol and potentially spread on a 2:1 ratio.

I found CCE using a real-time custom scan I built that hunts for calendar spreads between the front two monthly expiries.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 > 7
IV30™ GTE 30
Average Option Volume GTE 1,200

The goal with this scan is to identify back months that are cheaper than the front by at least 10 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and enough strikes to spread and thus a minimum stock price. I also require a minimum vol level in order to avoid any boring ETFs (or whatever).

The one-year CCE Charts Tab is included (below). The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see a very nice appreciation over the last year -- a move from $25.26 to now $31 on a 25% vol stock. I do note the very recent stock decline.

On the vol side we can actually see how the implied has risen well above the two historical realized measures but I also note how the implied has been dipping with the recent stock drop -- a bit odd.

But, ultimately, this is a skew note, so let's take a look.



We can see two phenomena here, both of which are quite compelling. First, note how elevated Dec vol is to the back two expiries. Second, note that earnings should be in the Feb cycle, yet Feb is the lowest priced (in terms of vol) of the front three expiries -- very odd. The last two earnings reports for CCE in calendar Q1 were 2-11-11 and 2-9-12. It's a very reasonable assumption that the next earnings release will also be in early Feb.

Finally, let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 39.03%, 24.71%, 24%. An interesting position to examine would be to own Feb with earnings and sell that elevated Dec. If the trade works out, then selling the Jan vol still covered by Feb could turn into a very cheap Feb position protected by an earnings release embedded in the options. Ya know...or not...

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Best Buy (BBY) - The Whole Story; How a $26 Bid Almost Left the Firm at Zero; News is Coming in Dec -- Even if it's No News.

BBY is trading $14.05, up 15.3% with IV30™ down 4.2%. The LIVEVOL® Pro Summary is below.



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Best Buy Co., Inc. is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.

I've written several times about BBY, the most recent one on 11-20-2012. You can read that post and "catch up" to the news at hand by clicking on the link:

Best Buy (BBY) - The Whole Story; How a $26 Bid Delay Might Leave the Company at Zero

I started the saga of BBY with the stock trading just below $22 on news of a potential takeover (private) by its former Chairman for $24-26 / share). I also wrote about BBY (last time) with the stock trading at $11.94. Today, the stock is popping, and here's the relevant news:

---
(Reuters) - Best Buy Co Inc (BBY) shares rose as much as 17 percent on Thursday as it became clearer that company founder Richard Schulze may have firmed up financing to buy out the consumer electronics retailer.

Shares reached as high as $14.44 after a report from the Minneapolis Star Tribune that Schulze is expected to make a fully financed offer for the company by a mid-December deadline.

Schulze's bid would be at least $5 billion to $6 billion, the newspaper reported late Wednesday, citing the source.

Schulze's bid at that level would be well below his initial offer range in August, when he said he could acquire Best Buy for $24 to $26 per share, or a total of $8.16 billion to $8.84 billion.

Source: Reuters via Yahoo! Finance; Best Buy shares up 17percent on $5 billion founder bid report, written by Phil Wahba and Dhanya Skariachan and Olivia Oran
---

So there you go -- a spurned $24-$26 bid has turned into what seems to be a welcomed bid in the $15-$17 range. Ouch... Having said that, the choice for BBY management now may be between the new lower bid and insolvency.

Let's turn to the BBY two-year Charts Tab(below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



We can see the steady but large destruction of shareholder value over the last two years with stock falling from the mid $30's to now half of that eve on a big up day. In Apr of 2010, this was a $48 stock.

On the vol side we can see how elevated the implied has gotten. I noted this last time I wrote about the firm, and back then the IV30™ was just 79%. Now we're looking at over 90%. I've included the IV30™ two-year chart below.



The trend is an easy one to identify -- "up." The 52 wk range in IV30™ is [28.32%, 96.06%], putting the current level in the 91st percentile (annual). That annual high was reached on 12-10-2012 (i.e. three days ago).

Let's turn to the Skew Tab, below.



We can see that the option market now clearly reflects the higher likelihood of an event (news) within Dec expiry as it's elevated to the back two months. That upside bend to the OTM calls in Dec reflects the risk (potential) of an upside move in the near-term.  In English, it reflects the possibility of a takeover bid in Dec expiry.  But, the picture is a bit unrepresentative of reality as many of hose calls are less than a nickel bid.

Finally, let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 114.42%, 83.82% and 63.51%, respectively. There is news in Dec for sure -- the question is, is the news a takeover, or is the news "no news." Either way, it's a vol event.

This is trade analysis, not a recommendation.

Vertex Pharma (VRTX) - Depressed Vol in Gapping Stock

VRTX is trading $42.32, up 1.2% with IV30™ down 3.9%. The LIVEVOL® Pro Summary is below.



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Vertex Pharmaceuticals Incorporated (Vertex) is in the business of discovering, developing, manufacturing and commercializing small molecule drugs for the treatment of serious diseases.

But, this is a company with ~$9 billion market cap and revenue nearing $2b / yr. This isn't a baby bio-tech. Having said that, it's still a bio-tech and this is a vol note -- depressed vol in particular. I found VRTX using a real-time custom scan that hunts for depressed vols.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The VRTX one-year Charts Tab is included (below). The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can a radical gap up on 5-7-2012, when the stock rose from $37.41 to $64.16 in two days. We can also see the steady decline after that move up until the last few trading days, where VRTX has made a nice turn up. On 12-7-2012 the stock closed at $38.88 and is now trading at $42.32, so a healthy pop over the last five calendar days. The 52 wk range in VRTX is [$28.49%, $66.10].

On the vol side we can see how the implied has been dipping. I've included the IV30™ one-year vol chart in isolation, below.



While there have been some rather impressive peaks, as of this writing we can see that the implied is sitting just above an annual low. The 52 wk range in IV30™ is [36.99%, 76.45%], putting the current level in the 2nd percentile (annual). It's this vol level that caught my eye.  Note that the HV180™ is 69.78%, or in English, the long-term historical realized vol of this sock is well above the short-term implied.

Finally, let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 37.16%, 38.43% and 45.01% for Dec, Jan and Apr, respectively. The next earnings release should be in Feb -- so outside of the front two expiries and inside Apr. In any case, given the industry, overall systematic risk of the market and the low vol level relative to its own past -- I thought this was an interesting one to look at.

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Phillips (PSX) - Stock and Vol Reach All-time Highs; Earnings Vol Sneaks Lower?... Compelling Vol Phenomenon

PSX is trading $52.90 with IV30™ unched. The LIVEVOL® Pro Summary is included below.



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Phillips 66 is a holding company. The Company is engaged in producing natural gas liquids (NGL) and petrochemicals.

This is an interesting note -- one with elevated vol but the earnings month is depressed to the new annual high in implied. This may be one of those few times were we can analyze selling all-time high vol and purchasing lower vol to cover while owning the earnings event. Tricky...

I found this stock using the real-time custom scan that searches for high vols relative to the short-term and long-term historical realized vol.

Custom Scan Details
Stock Price GTE $7 and LTE $70
IV30™ - HV20™ LTE 10
HV180™ - IV30™ LTE -8
Average Option Volume GTE 1,200
Industry isNot Bio-tech
Days After Earnings GTE 10 and LTE 60

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated both to the recent stock movement (HV20™) and the long term trend in stock movement (HV180™). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated IV30™ simply because earnings are approaching.

The PSX Charts Tab (six months) is included below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can see basically a straight diagonal line up in price appreciation. Six months ago this was a $32.60 stock and today it's well into the $50's. The all-time range in price for PSX (~7 months) is [$28.44, $54.32], so the company is nearing that annual high that it just recently reached.

On the vol side we can see how just of late the implied has been rising. The all-time range in IV30™ is [25.24%, 40.48%], putting the current level at an all-time high -- as the stock is also hitting an all-time high.

I've included the IV30™ chart in isolation below for a better picture of the recent move up.



Again, we can see more easily how the implied is breaching it's all-time high right now.

Let's turn to the Skew Tab, below. This is where it gets really interesting.



We can see how Dec vol (red curve) is elevated to Jan (yellow curve). What's odd is that I believe the next earnings release for PSX is due out in Jan expiry. This may be one of those few times were we can analyze selling all-time high vol and purchasing lower vol to cover while owning the earnings event.

Finally, let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 44.02% and 38.84% for Dec and Jan -- again, noteworthy if in fact earnings are in Jan. In either case, that 44% number is an all-time high.

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AAPL - Everything has Changed. The Old AAPL is No More. The New AAPL is a Riskier Entity and the Market Doesn't Know What that Means Yet.

AAPL is trading $528.42, down 0.9% with IV30™ up 1.2%. The LIVEVOL® Pro Summary is below.



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Apple Inc. (Apple), along with its subsidiaries, is engaged in designing, manufacturing and marketing mobile communication and media devices, personal computers, and portable digital music players.

This is a follow up piece to the post on 12-5-2012, entitled:
Apple (AAPL) - Have We Moved into a Totally New Volatility Paradigm for This Company? Has Everything Changed?

You can click on the title to read that older post. The main contention in that article was that I saw a potential paradigm shift in the way the option market reflected risk in APPL. The article today will focus on the same topic -- but with empirical evidence not from the implied volatility side (forward looking), but from the historical realized volatility side (backward looking).

Here's a quick snippet from the prior article, and then four charts which I find incredibly compelling.

---
Older Post
[H]ere's what really caught my eye. The most recent closing low in stock price was on 11-15-2012 when AAPL closed at $525.62. At that time, the IV30™ was rising and hit 32.55%. Shortly thereafter, we can see the stock rise again, only to now start another downward trend. But, with the stock $20 lower then than it is today and in what for all intents and purposes was a free fall from an all-time high, the implied only hit 32.55%.

[W]ith the stock having already reversed the straight down move from the all-time high, and now headed on a new downward trajectory (after a small recovery), the vol has expanded (increased) significantly more to over 36%. So we see a $20 higher stock price now, with a free fall having ended, yet the implied is now higher than it was during the free fall. In English, the risk reflected by the option market has shifted -- it's higher.

Vol can behave much like demand (in fact, vol is demand for protection (puts) or speculation (calls)), where there can be an increase in quantity demanded (that's moving on the same demand curve to the right) and an increase in demand (which is a totally new demand curve drawn above the prior one). I've included a contrived picture of some "widget" demonstrating the difference in an increase in quantity demanded (moving from one red dot to the other) and an increase in demand (moving from blue Demand curve D to red Demand curve D'), below.



IMHO, AAPL is seeing a new demand curve (i.e. vol) -- we're no longer moving on the same vol curve and have moved to a new (higher) one. Like the difference between an increase in quantity demanded and an increase in demand, AAPL is showing a brand new risk curve -- a new paradigm if you will -- and it reflects higher risk.
End Older Post
----

Now to the historical vol measures.  First, I have included the HV180™ chart and below that the HV360™ chart for AAPL over two-years. Note that HV is measured in trading days (not calendar days like implied vol), so HV180™ represents an average of ~9 months of data and HV360™ represents an average of ~18 months of data. So, in English, these are long-term trends not affected by short lived stock volatility.

AAPL HV180™


AAPL HV360™


I've drawn that yellow horizontal line to make it easier to see the high. What we can see here is that AAPL is now at multi-year highs for the very long-term HV180™ and HV360™ measures.

A fair question to ask, is, "how does this compare to the broader market?" Of course, the rationale being, if AAPL is mirroring the overall market, then this is not a firm specific trend, it's a coincidental data point.

Below I have included the same two charts, but have added the long-term HV for SPY as well.

AAPL HV180™ vs SPY HV180™


AAPL HV360™ vs SPY HV360™


I've highlighted the growing vol difference for both measures. The long-term HV measures for AAPL are rising as the SPY long-term HV measures are flattening. It bears repeating that the charts we're looking at here comprise of 9 months and 18 months of closing stock price data -- these are not averages that move easily with the blowing of the wind. These are very long-term measures for the largest company in the world.

The bottom line, in my opinion, whether it's b/c of the loss of Steve jobs, or a variety of other technology specific reasons (or all combined), AAPL is no longer the AAPL we once knew. The implied volatility (option market forward looking measures) bear this out, and the empirical historical stock movement bears it out as well.

The old AAPL is no more. And new AAPL is a riskier entity -- so says the option market and so says the empirical historical long-term stock returns.

This is a different company -- and the market doesn't know what that means yet.

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