This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

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

I'm not a fan of network marketing and have zero desire to join one, but that doesn't mean anything to me in relation to the investment thesis. Not everyone shares my agnostic opinion between a stock and the underlying company. Not understanding that the price is what you pay, and the value is what you receive costs investors a lot of money.

Don't make the same mistake and short a stock because you don't like the company or buy because you do. Allocate your investment capital based on if you have a measurable edge compared to your counterparty.

Remember, every time you make a trade, there is someone with the exact opposite opinion as you. That's what makes a market and someone is the smart money, and the other is the dumb money. If you can't clearly articulate the advantage you have over the other party then maybe you're not the smart money in that particular situation.

Herbalife shorts face a real possibility that they will wake up one morning and find their accounts are bleeding red. Shorts buying put options to limit risk probably will lose money because the implied volatility (time premium) is so rich that even if shares fall, option decay requires that the price fall fast and hard to profit.

Stocks with over 20% short interest and already beaten lower rarely continue lower at a rapid pace when they pay an oversized dividend, profitable, and feature a low price-to-earnings multiple. In other words, the time to short was when Herbalife traded above $70. Is it possible to make money shorting now? Sure, but don't try to predict the future, try to make solid decisions based on available information.

If you want to gain exposure, think about selling call options. The option premium is rich, and a covered call will have less of a "roller coaster" impact on your portfolio.

At the time of publication, Weinstein had no positions in securities mentioned.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
NUS $37.33 0.00%
AAPL $93.24 0.00%
FB $117.81 0.00%
GOOG $701.43 0.00%
TSLA $211.53 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs