Option Trends: Walgreen Company and Herbalife Ltd.

Call buyers have been scoping out WAG, while troubled HLF has attracted put traders

Options players are choosing sides on a pair of prominent wellness names: pharmaceutical retailing giant Walgreen Company (NYSE: WAG, $69.62, off $0.25) and nutritional supplements provider Herbalife Ltd. (NYSE: HLF, $61.91, up $0.03). Per data from the major options exchanges, traders have recently scooped up bullish positions on WAG, and implemented bearish plays on HLF. Here’s a look at what’s been happening in the options pits for these two stocks.

On the Chicago Board Options Exchange (CBOE), traders have bought to open 43,096 calls on WAG during the past five sessions, compared to just 1,084 puts. The resulting brow-raising five-day call/put volume ratio of 39.76 indicates a clear preference for bullish positions over bearish during the past week.

sir wag When including data from the other major exchanges and broadening the scope to look at two weeks of activity,  the 10-day call/put volume ratio comes in at a similarly lofty 17.74, which represents an annual bullish high. Call buying — relative to put buying — has therefore never been as popular on WAG during the last 12 months. This sentiment is echoed by Walgreen’s Schaeffer’s put/call open interest ratio (SOIR) of 0.58, which is 2 percentage points shy of an annual low.

Walgreen Company (NYSE:WAG) has been in a monster uptrend, however, so this heightened bullish speculation shouldn’t come as a surprise. The stock has gained nearly 22% so far in 2014 to $70.02 and tagged a new all-time high of $71.02 earlier today. Also, in terms of relative strength, WAG has been outperforming the broader S&P 500 Index (SPX) for the past three months.

As has been well documented, HLF is another story entirely. Amid accusations of the company’s business practices constituting a “pyramid scheme,” its shares have had a rocky few months. Since hitting a new all-time high of $83.51 on Jan. 8, the stock has tumbled nearly 26% to its present perch at $61.82.

Meanwhile, during the last five days at the ISE and CBOE, speculators have acquired 5,744 long puts versus 1,903 long calls, for a five-day put/call volume ratio of 3.02. Similarly, the 10-day ISE/CBOE/PHLX put/call volume ratio of 2.21 stands at an annual high, as speculators accelerate their bearish betting amid continued uncertainty surrounding the stock.

Short sellers have also shown increased interest in the shares, as short interest rose by nearly 15% during the last two reporting periods. Now, more than one-third of the stock’s float is sold short, and would take over eight days to cover, at the stock’s average pace of trading.

On the plus side for the HLF faithful … the stock is still more than 40% higher on a year-over-year basis. And if the company can continue to defend its practices, short sellers or bearish options players may be forced to rethink their positioning.   Beth Gaston, Schaeffer’s Investment Research