Bears score big on $HOG losses

Weak sales at Harley-Davidson translated to big gains for bearish option traders today.

Last Wednesday, Investitute’s proprietary programs found that 3,106 February $55 puts were purchased for $2.07 as part of a bearish roll with shares at $56.08. This was clearly a new position, as volume was well above the strike’s open interest of 1,013 contracts.

Those puts sold for $5.32 today, more than 2.5 times their purchase price. The stock fell 10.2% in the same time, underscoring how options can far outperform moves in their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

HOG dropped 8.05% to $50.84 today. The motorcycle icon’s fourth-quarter report this morning showed new sales slowing.