Herbalife (HLF) up 23% premarket following in Carl Icahn's Valentine's Day Massacre of Bill...


Herbalife (HLF) up 23% premarket following in Carl Icahn's Valentine's Day Massacre of Bill Ackman. Kid Dynamite notes Icahn has an economic interest in 13% of HLF, but does not own all that stock. Instead he has a combination of long stock, long calls and short puts. His exit strategy for the position is in question, but it's clear Icahn's goal is to create a short squeeze. Grab the popcorn.

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Comments (15)
  • deercreekvols
    , contributor
    Comments (9527) | Send Message
     
    Blue Horseshoe loves Herbalife.
    15 Feb 2013, 08:50 AM Reply Like
  • SoCalNative+(RIP)
    , contributor
    Comments (651) | Send Message
     
    Nice one, deer!
    15 Feb 2013, 09:33 AM Reply Like
  • deercreekvols
    , contributor
    Comments (9527) | Send Message
     
    Thanks SoCalNative,

     

    I've been waiting to use the Blue Horseshoe line...not sure how many are familiar with it.

     

    What is going on at USC? Lane Kiffin has a job but everyone else is shown the door? Might be time for a new AD.

     

    Have a good one.
    15 Feb 2013, 05:38 PM Reply Like
  • Abraxas
    , contributor
    Comments (297) | Send Message
     
    My 01/17/2015 50 calls just went up 120% today, and my 01/18/2014 70 calls are up 315%.

     

    This is only one day's profit, but I am not closing the positions here as the short squeeze has just started. Just wait until Ackman and the shorts are actually forced to start closing their positions. If he doubles up on it he risks blowing up.

     

    Sometimes, although not often, this is just too easy.

     

    I usually don't write here about specific trades, but I did write about the Herbalife tussle and how I intended to profit from it with long leap year calls without having to take a large risk. It is paying off handsomely.
    15 Feb 2013, 09:53 AM Reply Like
  • blackswans
    , contributor
    Comments (152) | Send Message
     
    My $60 puts went up a lot when it tanked from $70 last year.
    15 Feb 2013, 11:49 AM Reply Like
  • Abraxas
    , contributor
    Comments (297) | Send Message
     
    Hopefully you cashed in!

     

    ...I have to do the same...
    15 Feb 2013, 02:53 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Ackman Vs. Icahn: http://bit.ly/VW49pE
    15 Feb 2013, 03:50 PM Reply Like
  • smallcapALPHA
    , contributor
    Comments (182) | Send Message
     
    Icahn can make alot of money by going on TV and bashing ackmann and his short but when ackman shorts herbalife its stock manipulation. Icahn is known for turn-arounds and fast profitable trades which means he'll be playing herbalife for the shortsqeeze and thats about it while ackmans short is probably a "long short". icahn is in and out fast while ackman will be in for awhile. I personally have done some research and have watched ackman presentation and i believe his position is much better one but either way i think its a little to volatile for me and i generally regard any short as to risky
    15 Feb 2013, 03:55 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Incidentally, I do not believe that Ackman can get squeezed, based on my understanding of how he has structured his investment.
    15 Feb 2013, 03:56 PM Reply Like
  • gandypool
    , contributor
    Comments (83) | Send Message
     
    Hi Chris, I was wondering if Ackman had some kind of a deal where he had protection from being squeezed, however I don't know how he could do that without having options. Do you know how he might have done it? Thanks.
    17 Feb 2013, 04:09 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Yes. He has some kind of a deal where he has protection from being squeezed. He can do it without his owning options. An institution would use others' balance sheets to offset his contractually.
    17 Feb 2013, 10:27 AM Reply Like
  • Abraxas
    , contributor
    Comments (297) | Send Message
     
    Ackman can't be short, have the exposure and not have the risk. He could be flat through spread options but then, he wouldn't really be short, would he? So why would he do that?

     

    Long or short, someone has to be bearing the risk, if it isn't him, then "an institution," as you call it would have it. Nevertheless, that's unlikely for to basic reasons: Ackman wants to be short. That's his play. Further, why would anyone else relieve him from the downside risk of his short position unless they wanted to be short themselves?

     

    Ackman could be partially hedged (I am sure he is) and that would limit his gains and losses. The bottom line is that if he is net short, which I believe he is, he can, by definition, get squeezed.

     

    If you don't think that's the case, please tell me how.
    19 Feb 2013, 01:19 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    He is economically exposed to HLF; he can lose money if it goes up. However, my understanding is that he is protected from a lack of supply of the stock. I might be using squeeze in a different way. I do not mean the stock going up, even by a lot. I mean a lack of supply along with strong demand forcing the price up; that is what I think he is protected from.
    19 Feb 2013, 04:27 PM Reply Like
  • Abraxas
    , contributor
    Comments (297) | Send Message
     
    I believe that Ackerman has signed a contract with the stock lenders to guarantee that they will not ask for the stock back and force him to buy the shares in the open market to cover his short position. He would have to pay more for this, and if the stock went up hard, he would have to pay dearly, but the contract would, indeed, afford him some protection from being squeezed. The contract would offer a guarantee of the stock he needs to maintain his short position. Perhaps that's what you mean.

     

    In reality, contract or not, the owners can always ask for their stock back, and if the stock moves up hard, in all likelihood they would.
    19 Feb 2013, 05:17 PM Reply Like
  • Abraxas
    , contributor
    Comments (297) | Send Message
     
    "...that he is protected from a lack of supply of the stock."

     

    Frankly, I don't know what to make of this, as if this were to be the case, it would benefit the long positions not the short ones. Usually, people refer to a stock not being sufficiently available only in relation to not being available to borrow and hence, not being available for someone who wants to short the stock directly (not through options). I other words, the stock is hard to borrow, so it is difficult to short. The company and the long holders are, therefore, protected from others trying to build a large short position.

     

    By definition, though, the stock is always available for whomever wants to buy it, what changes is its price. So, if one puts a huge market order and there aren't many sellers, the stock's will go up and up picking off all available offers to sell. Either the order is fulfilled or the stock will continue to go up. By the way, if this happened, chances are that even the institutions who have lent the stock to others so they can short it, would ask for the stock back (so they can sell it and profit), forcing the shorts to unwind their position. That is the classic short squeeze.

     

    So, "a lack of supply with a strong demand" would send the stock price higher, not lower, which would be harmful to the short position. The bottom line is that the scenario you have described would probably be the worst possible outcome for someone who is short.

     

    Maybe you mean something else, but I can't see what.
    19 Feb 2013, 05:07 PM Reply Like
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