Harley-Davison Weathers Storm

Back in June, I mentioned shares of Harley-Davidson (HOG, $41.94, up $0.19) had been in a downtrend for 18 months, falling from a high of $75 to a low of $32.18 on 7/15. Two days later, the company announced earnings and since then the stock has been on a roll.

Harley-Davidson reported 2Q earnings of $223 million, or $0.95 a share, versus $291 million, or $1.14, last year. Wall Street had expected earnings of just $0.76 a share so the company beat by 19 cents. Revenue checked in at $1.6 billion or about $200 million higher than estimates.

With the stock at an eight-year low, the stock was beginning to look attractive and I said to wait for the company to report earnings before going long. Most of my assumptions turned up fairly accurate, the stock drifted lower, the weather warmed and gas prices continued to climb. It seems that people are buying Harley’s as a way to combat higher gas prices. Another reason I chose Harley was because there was no “pure-play” in the scooter industry that I liked and it has been apparent that two wheels are cheaper than four.

I said at the time, “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.” Well, Harley did hit its bottom and it was at $32. It would have been have been risky to buy a call option ahead of earnings but that bet would have paid off.

The January 40 calls (HOGAH, $5.20, unchanged) were trading at $4 and the January 50 calls (HOGAJ, $1.32, down $0.08) were trading at $1.15 in the 6/13 blog and they were a lot cheaper when Harley bottomed out. I said to wait for the stock to get above $42 before seriously considering any of these plays and here we are. I wouldn’t go crazy with this trade but one or two call options may be worth a gamble.

Rick Rouse
Rick@OptionsMentoring.com

]]>

Leave a reply Cancel reply

CFTC Disclosure:

GOVERNMENT REGULATIONS REQUIRE DISCLOSURE OF THE FACT THAT WHILE THESE METHODS MAY HAVE WORKED IN THE PAST, PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. WHILE THERE IS A POTENTIAL FOR PROFITS THERE IS ALSO A RISK OF LOSS. A LOSS INCURRED IN CONNECTION WITH Momentum Options Trading, LLC CAN BE SIGNIFICANT. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCE. THERE IS SUBSTANTIAL RISK IN TRADING. A LOSS INCURRED IN CONNECTION WITH FUTURES TRADING CAN BE SIGNIFICANT. WE MAKE NO CLAIM REGARDING PAST OR FUTURE PERFORMANCE. WE MERELY TRACK EVERY TRADE AND SHOW THE PERFORMANCE OF ALL TRADES THE SYSTEM OR NEWSLETTER PRODUCES. SIMULATED TRADING IS DIFFERENT THAN TRADING REAL MONEY. HYPOTHETICAL RESULTS ARE NOT REAL RESULTS. PLEASE CONTACT YOUR BROKER ABOUT THE RISK OR TRADING STOCKS, OPTIONS OR FUTURES. ALL COMMUNICATIONS ARE OPINIONS NOT ADVICE.

CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

Blog