Harley-Davidson (HOG) sinks on analyst commentary


HOG logoHarley-Davidson Inc. (NYSE: HOG) shares are falling today after a research report was released this morning by Soliel that indicated HOG may lower its guidance. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HOG.

After hitting a one-year high of $66.00 last April, the stock hit a one-year low of $34.17 in March. This morning, HOG opened at $36.47. So far today the stock has hit a low of $35.34 and a high of $36.47. As of 12:40, HOG is trading at $35.80, down $1.26 (-3.4%). The chart for HOG looks bullish but deteriorating, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.

For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in five weeks as long as HOG is below $40 at May expiration. Hershey would have to rise by more than 12% before we would start to lose money. Learn more about this type of trade here.

HOG hasn't been above $40 by more than a little bit since January and has shown resistance around $39 recently. This trade could be risky if the company's earnings (due out on Thursday) are a positive surprise, but even if that happens, this position could be protected by resistance HOG might find just above $40, where the stock has topped out a few times in the past three months.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in HOG.

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Last updated: February 13, 2012: 06:52 AM

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