The more articles I read and the more comments I sift through, the more it feels as though the small retail investor is again playing its role as the suckers to the games of wall street billionaires. I am not going to beat a dead horse and try to separate fact from fiction in the Herbalife debacle but rather present the only thought that makes any sense to me relating to the Herbalife story.
It seems to me that this stock is one of many, subject to the stock options pricing and other manipulative games. For example, if someone wanted to create maximum value in stock option premiums, he could do one of two things. He could somehow distort time or he could distort volatility. The more either of these two variables increases, the more the premium on their related option increases. Since the first in not possible, at least as far as I know, the second seems to be the more realistic option. To me, the Herbalife show seems to be nothing but a circus to distract the public from what is really going on. It seems to me the only real fact about Herbalife is that it's volatility has been maintained at a high level.
While small investors/traders play poker with who's right and who's wrong, the house is slowly raking away everyone's money at the table. Only after many hours of play can one look around the table and see that almost everyone's chip stack is much lower than what they started with. It is not important to the big money who wins or loses, only that the players keep playing and keep digging into their pockets for more money. The house knows that a winner will likely keep trying to win more and the loser will keep trying to win their money back until the house has the all the money.
Who is going to win the Herbalife battle? Whoever needs to, to extract the maximum profit from its players. What we should be focusing on is accountability and who's behind the curtain not the price action of certain stocks. While there are a few stocks that follow closely to business fundamentals, the majority follow the sentiment that is fed to the market. I have seen a stock move in exactly the opposite direction as it sensibly should more times than can be explained rationally. Keeping investment communities bickering back and forth is the perfect recipe for success, just not the communities'.
Disclosure: I am short HLF.
Additional disclosure: Short via small number of out of the money puts