Ackman's Pershing Square Turns To Options For Herbalife Position

Nov 1 2017 | 9:14pm ET

Famed activist hedge fund manager Bill Ackman has converted his beleaguered short position on nutritional supplement maker Herbalife into put options that caps his potential losses on the stock.

Ackman has long maintained Herbalife is essentially a pyramid scheme and took a $1 billion short position on the company back in 2012. The stock has risen since and is backed by investors such as Carl Icahn, who is among the company’s largest shareholders and strongest advocates. Up almost 50% so far this year, Herbalife very nearly went private over the summer.

Bruised by big losses earlier year on Valeant Pharmaceuticals, Ackman is undoubtedly keen to both limit his risk and prevent a further short squeeze. By converting his short position to options, he accomplishes both – the puts will reportedly limit risk to no more than 3% of Pershing Square’s capital, and the derivative nature means traditional means of squeezing shorts, such as stock buybacks, are less effective. 

“We’ve been entirely right on our Herbalife investment in terms of the fundamentals of the business,” Ackman said to CNBC Wednesday. “We’ve been wrong on the share price. A big part of that is the fact that companies repurchase a huge amount of shares.”

Herbalife stock fell 2.45% on Wednesday to close at $70.84.

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