NEW YORK (TheStreet) --Shares of Hain Celestial (HAIN - Get Report) were plummeting 25.36% to $39.86 during early-afternoon trading on Tuesday after the company delayed its earnings release citing an accounting issue. The health food producer also said that it does not expect to meet its anticipated sales and profit levels for the year.
CNBC contributor Jon Najarian noticed unusual activity in the stock on Friday and bought calls after he hypothesized a possible buyout was looming.
"We saw unusual activity in Whitewave (WWAV), and that was a takeout, this seemed to fit exactly into that model as far as the way it was trading into the weekend. Obviously, we got fooled," Najarian said.
Moreover, Najarian noted that because of the misinterpretation of the stock's behavior it cost him about $10,000.
However, there was a slight silver lining in this situation for Najarian, and one that he used as a valuable lesson to impart to investors.
"I bought 55 calls that I cited out in September, and I sold the 60 calls against it, paying a net of $1.20 for that spread. Unfortunately, that spread went to 15 cents today. That's that $10,000 I was talking about, if I were in 10,000 shares of the stock, I would have lost almost $140,000," Najarian explained.
This example, Najarian said, shows investors that the "risk-reward" is definitely with the options, and not on the stock.
"Options are a risk-transfer vehicle, and the reason folks trade them every day is because of that," Najarian noted.
Separately, TheStreet Ratings rates Hain Celestial as a "Buy" with a ratings score of "B." This is driven by a number of strengths, which TheStreet Ratings believes should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover.
The company's strengths can be seen in multiple areas, such as its impressive record of esarnings per share growth, revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins.
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: HAIN