First option trade: Herbalife

After I spent about 1 month opening a trading account in Norvik bank, on October 25th I finally bought my first options. I chose Herbalife PUT options with the longest term and with the lowest strike price that were available: $35 strike price, expire date: 2019-01-18

Screenshot 2016-11-02 23.48.27.png

At first I tried to buy them for $4.3, but after a report (already deleted) was published on Zerohedge about possible use of Herbalife to launder money, I decided not to wait anymore and paid $4.7 to get two 100 share lots, so my cost was 4.7*2*100=$940

Short explanation for those not familiar with options – I paid $940 for the right (but not obligation) to sell 200 Herbalife shares for the price of $35 per share until Jan 18th, 2019. So to get any profit from this trade, I would need to either:

a) sell these options (rights) to someone else for higher price (premium) than I paid for them, or

b) I would need Herbalife stock price to get below $35-4.7=$30.3 – then I could buy 200 shares of $HLF, and execute my options (sell them for the fixed $35 price), and the difference would be my profit. Note that $HLF was trading at about $60 when I bought these options, so I would need the price to drop by 50+% till Jan 18th, 2019.

I was planning to hold these options for quite a while – at least 6-9 months, because I don’t expect to see a lot of good news after FTC asked them to pay $200 million and fundamentally restructure their business – by making sure people get commissions for selling products not recruiting other people.

But after I got info – that I can also sign up to Interactive Brokers myself without any bank as intermediary, I decided to close my $HLF position, and also close Norvik bank and trading account.

Got lucky with timing as well – yesterday Herbalife announced their past quarter results and that their CEO will depart soon. Reaction? Stock was down -10% during the day, and my options up 27%.

Screenshot 2016-11-02 22.02.34.png

I managed to sell them for $5.79 and get $1158, so profit before commissions: 1158 – 940 = $218 or +23%. But if I include 2*$20 commissions for buy/sell order and $10 monthly fee, then final profit: $168 or +18%.

Screenshot 2016-11-02 22.28.33.png

Not bad for first trade and 8 days, but the risk was quite high as well, because most options expire worthless. Probably will do some more trades but with 10 times lower commissions next time.

One reply on “First option trade: Herbalife”

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