Shares of Harley-Davidson (HOG, $38.93, up $0.84) have been in a downtrend for 18 long months as the stock has fallen from a high of $75 to its current price. It has been a tough road for America’s favorite motorcycle maker as the company recently cut its short-term production to preserve the brand’s integrity.

Back in April, Harley-Davidson reported 1Q earnings of $188 million, or $0.79 a share, versus $192 million, or $0.74, last year. Revenue checked in at $1.3 billion, a decent 11% rise. Naturally, the slowing U.S. economy had a big impact on Harley which was reitterated several times in their conference call. Although declining sales to the tune of 14% in the U.S. are a concern, the company expects market share to increase abroad. Losses at its in-house consumer loan division have also weighed down the stock.

With shares sitting at an eight-year low, the stock is beginning to look attractive. As more baby-boomers get older Harley will certainly rebound but the question is when?

To start, I would wait for the company to report 2Q earnings which should be sometime mid-July. Usually it’s better to wait and see if a company’s products are back in demand before trying to time a bottom which I’m not quite sure if Harley has hit or not. It’s hard to say what the demand is after Harley’s 1Q report but the weather is warmer and gas keeps going higher. These two factors aren’t likely to help the stock in the short-term and I doubt the company says anything exceptional in its next earnings report.

Based on these assumptions, the stock could be range bound over the next few months with the possibility of heading even lower. If you want to own Harley now, maybe you could sell puts with the stock getting put to you at 35 or 37.50. Check out the premiums and go from there. Some option traders sell puts on stocks they don’t mind owning as they collect the premium which reduces their cost basis.

The other side of the spectrum would be to buy calls but we’ve already established that the stock could trade in a tight range or even head lower. So any near-term calls wouldn’t support our theory. However, LEAPs give us a much longer time horizon for the stock to rebound.

The January 40 calls (OAIAH, $4.00) and the January 50 calls (OAIAJ, $1.15) are an option. So are the 2010 January 40 calls (YBYAH, $6.50) and the January 50 calls (YBYAJ, $3.40). I’d wait for the stock to get above $42 before seriously considering any LEAP call options and if the stock continues to drift sideways or lower, they might get cheaper. Let’s keep Harley-Davidson on our Watch List and revisit the story a month from now.

Rick Rouse