Motorcycle manufacturer Harley-Davidson (HOG) is up 13% over the past year, largely in range-bound trading. One trader sees the shares drifting a bit lower over the coming weeks.
That’s based on the November 15 $32 puts. With 34 days until expiration, 7,166 contracts traded compared to a prior open interest of 235, for a 30-fold rise in volume on the trade. The buyer of the puts paid $1.25 to make the bearish bet.
Harley shares recently traded for about $34, meaning shares would need to decline by about $2, or about 6%, for the option to move in-the-money.
The strike price is at the lower end of the range shares have traded at over the past few months, but well above the 52-week low of $25.43.
That fits in with the company’s sideways trading pattern, and continues the current downside trend.
Operationally, Harley has been performing well, with earnings up 23%, and revenues up 12% over the last 12 months. Shares are still inexpensive at about 7 times forward earnings.
Action to take: Investors may like shares, at least after the current trend lower ends. It’s likely shares will bottom out in the low $30 range before attempting to move higher.
Once an uptrend starts, investors can likely see some profits on the long side. At current prices, Harley also pays a 2% dividend.
For traders, the November 15 $32 puts are well positioned for the current short-term downside in shares, and the option can likely see mid-double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.