NEW DIRECTIONAL PUT PLAYS

Herbalife Ltd. - HLF - close: 40.02 change: -3.57

Stop Loss: 40.55
Target(s): 31.00
Current Option Gain/Loss: Unopened
Time Frame: Exit prior to earnings on Feb. 19th
New Positions: Yes, see below

Company Description

Why We Like It:
Late this morning word was announced that the Federal Trade Commission (FTC) would hold a press conference later in the day as they bust a pyramid scheme. They didn't say who the company was and all the publically traded multi-level marketing names, like HLF, traded lower on worries they might be the target company.

The company the FTC targeted was called Fortune Hi-Tech Marketing (FHTM). Yet the news that HLF was not the target failed to produce a bounce in the stock price. Normal volume on HLF is about 13.6 million. Today's volume was 28.2 million. The stock is flirting with a breakdown under support near $40.00. Before I continue I want to warn you that HLF can be a volatile stock. December saw a plunge from $48 to $24. By mid January it had bounced back to $45. Now shares appear to be rolling over again.

There have been high-profile allegations that HLF is a pyramid scheme, which is why shares reacted they way the did today. Technically the stock looks weak. It is heavily shorted, which can produce short squeezes. I suspect the stock is about to move lower again. We consider this an aggressive, higher-risk trade. Today's low was $38.71. I am suggesting we buy puts when HLF hits $38.50. If triggered our target is $31.00.

Trigger @ 38.50 *Small Positions*

- Suggested Positions -

buy the Feb $37.50 PUT (HLF1316n37.5) current ask $2.10

Annotated Chart:

Entry on January -- at $---.--
Average Daily Volume = 13.6 million
Listed on January 28, 2012