A New Partnership Could Revive This Company
Over time, companies often make changes to their business models. One such change is underway in HLF, as Business Wire reported,
“Premier global nutrition company, Herbalife Nutrition (NYSE: HLF), is named the official sports nutrition partner of the International Champions Cup (ICC).
The ICC, founded in 2013, is the world’s premier annual summer soccer tournament featuring 12 of the top clubs in the world, playing 18 matches in 16 cities across North America, Europe and Asia, and is owned and operated by Relevent Sports Group (RSG).
Herbalife Nutrition’s partnership with this year’s tournament brings matches to China on July 24 and 25, and was made possible by the China Investment Fund, using tax incentives provided by the Chinese government.
Herbalife Nutrition’s sports nutrition line, currently used by more than 190 athletes and sports teams around the world, will be available on the field at all matches for players to use.
“As soccer fans ourselves, we’re excited to help bring the International Champions Cup to fans all over the world. It’s especially exciting to have matches played in China, where millions of fans will have an opportunity to cheer on some of the world’s premier soccer teams,” said Michael Johnson, CEO of Herbalife Nutrition.
“The teams and players participating in ICC matches are competing at the highest level of the sport, so you know that conditioning, nutrition and hydration are key factors to their success.”
Top soccer teams from around the world, including Juventus, Manchester United, Arsenal, FC Bayern and Tottenham Hotspur will have access to the Herbalife Nutrition NSF certified for sports hydration and nutrition products at all tournament matches.
The International Champions Women’s Cup, starting August 15 in Cary, North Carolina, will also benefit from Herbalife Nutrition products and will feature company-sponsored Atletico de Madrid Women’s soccer club, as well as the North Carolina Courage, Lyon and Manchester City.
“It’s important for us at Relevent Sports Group to find global partners who share our vision for the growth of soccer,” said Aaron Ryan, Chief Operating Officer of Relevent Sports Group.
“Herbalife Nutrition has a long history of supporting soccer, so it was a natural fit to bring them on as the sports nutrition provider for the International Champions Cup.”
In addition to festivities surrounding the matches, Herbalife Nutrition and the ICC will partner with local charitable organizations, Angel Hears Love and Teenager Football Competition, to engage with local community youth by hosting player meet-and-greets, skills clinics and donation of seats to the games.
The news could come as shares of HLF are bottoming.
This could be a consolidation or reversal after a long decline.
A Trade for Short Term Bulls
As with the ownership of any stock, buying HLF could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for HLF
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For HLF, the July 19 options allow a trader to gain exposure to the stock.
A July 19 $45 call option can be bought for about $1.12 and the July 19 $47.50 call could be sold for about $0.41. This trade would cost $0.71 to open, or $71 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $71.
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in HLF the maximum gain is $1.79 ($47.50 – $45 = $2.50; $2.50 – $0.71 = $1.79). This represents $179 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $71 to open this trade.
That is a potential gain of about 152% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.