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Bulls look for more upside in Herbalife

David Russell (david.russell@optionmonster.com)

Herbalife has been working its way higher, and the bulls think the party's just getting started.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 7,000 November 50 calls for $5.45 and the sale of a matching number of November 45 calls for $7.75. Volume was below open interest in the 45s, which indicates than an existing position was closed and rolled to the higher strike.

Calls lock in the price where shares can be purchased, letting investors cheaply track upside in the stock price. That limits risk and offers the opportunity for significant leverage if they anticipate the direction correctly.

In the case of today's trade, the investor probably bought the November 45 calls at an earlier date and is adjusting the position now that the stock has climbed. He or she collected a credit of $2.30 in the process and is positioned for more potential gains through the new November 50 calls. (See our Education section)

HLF is down 0.77 percent to $48.01 this afternoon but is up 26 percent in the last three months. The weight-loss company was the subject of a major dispute between Wall Street heavyweights Bill Ackman and Carl Icahn earlier this year as Ackman questioned its accounting while Icahn got long. (See related story )

The company's last two earnings reports have beaten expectations, and the stock has been finding support at its 200-day moving average in recent months, which could make some chart watchers think that it's due for further gains. Short interest remains elevated, standing at 44 percent of the float in mid-June.

Total option volume is nearly triple its daily average so far today, according to the Heat Seeker. Calls outnumber puts by 7 to 1.

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