Unusual Options Activity In Harley-Davidson $HOG

| June 10, 2015 | 0 Comments

HOG OptionsUnusual Options Activity In Harley-Davidson $HOG

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week…

Harley-Davidson $HOG is of course known for its iconic motorcycles.  The company generates over $6 billion a year in sales from its bikes and related products.  For a good description of the company, follow the link.

$HOG is trading at $53.99, down over 17% for the year.  That’s 24% below the 52-week high and just 2% from the 52-week low.

So what does unusual options activity in HOG tell us?

Harley gapped lower in April when it lowered its shipment forecasts for the year ahead.  The stock fell more in a single day than it had since 2009.  Basically, the strong dollar gave (and is giving) the competition (all outside the US) an advantage.

However, the company posted better than expected earnings and is now trading at an attractive valuation point.  Moreover, $54 per share has been a very strong support level so far for $HOG over the past year.  And, it continues to hold strong this month.

Here’s the deal…

This week, we’re seeing some decent bullish action in $HOG options.  The most significant trade is a long call/short put spread.  This type of a spread is a pure bullish strategy, and makes money when the underlying stock goes higher.

More specifically, a trader purchased 3,500 August 57.50 calls for $1.27, while at the same time selling 3,500 August 50 puts for $0.97.  That means the total cost of the trade was $0.30 per spread or $105,000.

This type of trade is a called a risk reversal and it’s an advanced bullish strategy.  If the stock goes above $57.80 by August expiration, the trade makes money.  Between $57.80 and $50, the trader only loses the price paid for the spread.  However, below $50 is where losses can’t start to mount up, with essentially unlimited downside potential.

It’s the downside that makes the trade more advanced.  However, given the company’s resilience at $54, downside risk seems limited.  The question becomes whether the stock can break the $57.80 barrier.

Here’s the chart of $HOG:

unusual option activity, a chart of $HOG

After the plunge in April (due to earnings), the share price has remained well below the 50-day moving average.  The 50-day line is right around $57.50, which happens to be the upper/long strike of the trade.

Given $HOG’s fundamentals and technical support, the downside risk seems limited.  The upside potential could also be substantial should the stock break through the 50-day moving average.  $0.30 per spread seems like a reasonable price for the trade given the risk/reward profile.

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.

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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.