Bill Ackman, founder of hedge fund firm Pershing Square, might have dropped out of the three comas club in the last week with his 21.5 million share position in Valeant (VRX) down about 25% from last week’s highs, or a mark to market loss of about $430 million, the stock is down 36% on the year, and down 75% from its all time highs made this past August. Ugh.
Adding insult to injury Ackman is thought to be a good portion of the 21.5 million share short interest in Herbalife (HLF), which is up 26% in the last week. I am not going to even attempt to do the math here as I have no idea what he is short and how he is protected, or levered with options but that’s also likely a large loss.
Whenever you have battleground stocks like these two, where players on both sides have accused of fraud, options activity is usually quite prevalent at inflection points.
VRX: Options volume in VRX is 2x average daily volume with one of the largest trades of the day looking like an overwrite to a long stock position. When VRX was $62.50 shortly after 10am, it appears that a trader sold to close 5,000 Oct 77.50 calls at $10.60 to open. If this is in fact an overwrite then the trader would take in the $10.60 in premium if the stock is $77.50 or lower. If the stock is $77.50 or higher than the trader would have their 500,000 shares called away, but would have effectively sold their stock at $88.10.
Taking a quick look at options prices in VRX, 30 day at the money implied volatility is back near its October highs when the stock was in the throws of a massive crash, vol sales appear to be a great way to potentially add yield as this company is not getting taken out, but the news flow could settle, causing options prices to come in substantially:
HLF: options volume is 3x average daily volume, with most of the activity in calls. When the stock was $55.40 a trader rolled out a bullish view, selling to close 10,000 March 60 calls at $1.10, and bought open 10,000 of the May 60 calls for $4.70. These calls now break-even at $64.70, up nearly 18% on May expiration, which would be above the stock’s 52 week highs. With 33% short interest (much of it Ackman who is likely trapped) and Carl Icahn on the other side as the largest shareholder with 17 million shares I suspect he and other longs smell blood and are doing their best to squeeze Ackman out of HLF. All that said this is one of the ugliest long term charts I have ever seen with a potential massive head and shoulders tops:
For those following at home, the irony here is obvious. For years Ackman has called HLF a fraud and has gone to great lengths to prove it. But with his VRX long, the SEC and others (including Presidential candidate Hillary Clinton) have set their sights on the company suspecting some shadiness and possibly fraud. He appears to be going down with the ship with VRX and out with the tide in HLF.