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Nu Skin Shows Why You're a Fool For Shorting Herbalife

Stocks in this article: NUS HLF

NEW YORK (TheStreet) -- Good news! Nu Skin Enterprises (NUS) is only getting fined.

If you're short Herbalife (HLF), you better take a close look at Nu Skinand what happens when a stock priced for destruction receives a stay of execution.

Nu Skin, the network marketing health care product maker, said China's Administration of Industry and Commerce will only hit Nu Skin with $540,000 in fines for unregistered direct sales and product claims lacking sufficient evidence to support stated benefits.

The market heard this and saw a significant victory because China could've barred the company from ever selling its products there again.

Nu Skin shares soared over 30% in pre-market trading and now are up 19% to $89. Nu Skin Enterprises voluntarily suspended business promotional meetings and new applications for sales representatives earlier this year and hasn't resumed recruiting pending direction from Chinese regulators.

Nu Skin Enterprises' short-seller blood bath on Monday is nothing compared to what Herbalife investors will face if it receives a comparable Chinese resolution. Only 4.7% of Nu Skin Enterprises shares are shorted compared to neck-tightening 24% short interest for Herbalife.

For Herbalife investors, an announced slap on the wrist could send shares 50% higher before the opening bell. I warned investors that shorting Herbalife is full of peril offering little chance to profit. Maybe if you're skilled at active day trading a profit can be squeezed out of trading options, but if you buy and hold put options, you have a negative expectation in my view.

I also posted a Real Money Pro trade idea that included selling the August $40 put before the market opened on Friday. It's fantastic that it turned out to be the high of the day, but more importantly is it places you in a position to receive the best of it when others panic.

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