I have deliberately refrained from writing about Herbalife until the 17 January 2015 option expiry.
We know from public disclosures that Pershing Square (PSQ) had a huge put option position on Herbalife.
There were also a vast number of put options that expired on 17 January.
Here are the outstanding in-the-money put contracts as at market close Friday.
| issue | open interest | |
| 31.5 | HLF150117P00031500 | 1,174 |
| 31.5 | HLF150130P00031500 | 1 |
| 32 | HLF150117P00032000 | 974 |
| 32 | HLF150123P00032000 | 34 |
| 32 | HLF150130P00032000 | 31 |
| 32.5 | HLF150117P00032500 | 5,318 |
| 32.5 | HLF150123P00032500 | 59 |
| 32.5 | HLF150130P00032500 | 26 |
| 33 | HLF150117P00033000 | 677 |
| 33 | HLF150123P00033000 | 116 |
| 33 | HLF150130P00033000 | 137 |
| 33.5 | HLF150117P00033500 | 125 |
| 33.5 | HLF150123P00033500 | 276 |
| 33.5 | HLF150130P00033500 | 12 |
| 34 | HLF150117P00034000 | 206 |
| 34 | HLF150123P00034000 | 23 |
| 34 | HLF150130P00034000 | 13 |
| 34.5 | HLF150117P00034500 | 20 |
| 34.5 | HLF150123P00034500 | 78 |
| 34.5 | HLF150130P00034500 | 63 |
| 35 | HLF150117P00035000 | 13,729 |
| 35 | HLF150123P00035000 | 79 |
| 35 | HLF150130P00035000 | 39 |
| 35.5 | HLF150117P00035500 | 168 |
| 35.5 | HLF150123P00035500 | 35 |
| 36 | HLF150117P00036000 | 2,096 |
| 36 | HLF150123P00036000 | 2 |
| 36.5 | HLF150117P00036500 | 190 |
| 36.5 | HLF150123P00036500 | 2 |
| 36.5 | HLF150130P00036500 | 18 |
| 37 | HLF150117P00037000 | 481 |
| 37 | HLF150123P00037000 | 135 |
| 37.5 | HLF150117P00037500 | 7,446 |
| 37.5 | HLF150123P00037500 | 248 |
| 37.5 | HLF150130P00037500 | 8 |
| 38 | HLF150117P00038000 | 119 |
| 38 | HLF150123P00038000 | 7 |
| 38 | HLF150130P00038000 | 47 |
| 38.5 | HLF150117P00038500 | 17 |
| 38.5 | HLF150123P00038500 | 41 |
| 38.5 | HLF150130P00038500 | 2 |
| 39 | HLF150117P00039000 | 22 |
| 39 | HLF150130P00039000 | 7 |
| 39.5 | HLF150117P00039500 | 25 |
| 39.5 | HLF150130P00039500 | 10 |
| 40 | HLF150117P00040000 | 20,202 |
| 40 | HLF150123P00040000 | 16 |
| 40 | HLF150130P00040000 | 6 |
| 40.5 | HLF150123P00040500 | 4 |
| 41 | HLF150123P00041000 | 3 |
| 42.5 | HLF150117P00042500 | 7,563 |
| 43 | HLF150117P00043000 | 1 |
| 44 | HLF150117P00044000 | 11 |
| 44 | HLF150123P00044000 | 11 |
| 45 | HLF150117P00045000 | 18,770 |
| 47 | HLF150117P00047000 | 21 |
| 47 | HLF150123P00047000 | 1 |
| 47.5 | HLF150117P00047500 | 9,611 |
| 50 | HLF150117P00050000 | 73,611 |
| 52 | HLF150123P00052000 | 2 |
| 52.5 | HLF150117P00052500 | 27,058 |
| 55 | HLF150117P00055000 | 16,754 |
| 55 | HLF150123P00055000 | 11 |
| 57.5 | HLF150117P00057500 | 7,597 |
| 60 | HLF150117P00060000 | 43,836 |
| 62.5 | HLF150117P00062500 | 3,173 |
| 65 | HLF150117P00065000 | 27,343 |
| 67.5 | HLF150117P00067500 | 957 |
| 70 | HLF150117P00070000 | 13,127 |
| 72.5 | HLF150117P00072500 | 638 |
| 75 | HLF150117P00075000 | 1,373 |
| 77.5 | HLF150117P00077500 | 184 |
| 80 | HLF150117P00080000 | 9,981 |
| 82.5 | HLF150117P00082500 | 892 |
| 85 | HLF150117P00085000 | 43 |
| 87.5 | HLF150117P00087500 | 109 |
| 90 | HLF150117P00090000 | 2,329 |
| 95 | HLF150117P00095000 | 263 |
| 100 | HLF150117P00100000 | 5,276 |
| 105 | HLF150117P00105000 | 172 |
| 110 | HLF150117P00110000 | 115 |
| 115 | HLF150117P00115000 | 51 |
| 120 | HLF150117P00120000 | 69 |
| 325,520 |
They add up to 325 thousand contracts outstanding representing 32.5 million shares.
These options expired on Saturday morning and I presume that the stock has been delivered.
The delivery of these options may have a profound effect on the Herbalife share register. These effects will be part of this series. For reference there are less than 82 million basic shares outstanding and about 91 million diluted shares. However basic shares are the right comparable because delivery has to be effected through basic shares outstanding.
It was generally assumed that these options belonged to PSQ.
Bill Ackman (Trades, Portfolio) however has issued a denial. To quote:
To set the record straight, 97% of the Herbalife put options owned by Pershing Square have been extended and have expiration dates up until 2016. The January put options held by Pershing Square have a strike price of $US65 share. Pershing Square may choose to extend, sell or exercise the January put options depending upon market conditions and other factors.
Those in the know have understood that the options expiring on 17 January were not PSQ's options.
PSQ's option position in Herbalife is an off-market position.
I know the contract terms as do many others.
Some of the strikes are very unusual.
They include 44,362 call contracts [which I presume hedge a short position] expiring on 17 April with the very unusual strike price of $69.99. [The contracts represent 100 shares.]
They also include puts expiring 15 May, 11,550 contracts with a $44.50 strike and a further 19,500 contracts with a the unusual $49.99 strike.
There are a further 25 thousand contracts for calls with another $69.99 strike.
I could go on... and on. Ackman's position is well known amongst connected and sophisticated longs.
Moreover like many things that Bill Ackman (Trades, Portfolio) says he is being cute-with-the-truth. Bill said his "puts" largely didn't expire on 17 January. He however owned a large number of calls that expired - and these calls hedge the oversized short position. For example PSQ carried 4,375 call contracts that expired this weekend with a strike price of $89.90. Presumably these hedged 437,500 short positions.
I wouldn't bother disclosing that I knew details of PSQs unlisted positions except that it is useful in future posts.
John
Post script: If you (like me) believe that Herbalife is a legitimate business and (like me) you believed that the end game was a private equity bid - then I have a puzzle for you.
How could you - knowing the detail of Bill Ackman (Trades, Portfolio)'s position - make a simply humungous amount of money at least partly at the expense of Pershing Square and their clients? Because I assure you some people want to play rope-a-dope with Mr Ackman. [If you think that Carl Icahn (Trades, Portfolio) has really suddenly become Bill Ackman (Trades, Portfolio)'s bosom buddy then you don't know Carl...]
Secondly: I suspect that this post will cause Pershing Square's office to be quiet and unusually tense on Monday.
Can you say witch-hunt?
Sure, I knew you could.
