$HOG bears ride for profits

It took only a week for bearish option traders to post exponential profits in Harley-Davidson (HOG).

Market Rebellion’s Unusual Option Activity Service flagged bearish option activity during two consecutive sessions last week in downside puts:

–On Jan. 28, 2,000 Weekly $40 puts expiring on Feb. 5 were purchased for $1.55 to $1.83 as part of a bearish spread above open interest of 20 contracts with shares at $41.23.

–Then on Jan. 29, 2,000 Weekly $39 puts, also expiring on Feb. 5, were purchased for $1.40 as part of a bearish spread above the open interest of 16 contracts with shares at $40.19.

Those puts both traded for as much as $8.36 and $6.52 today, respectively, at least 4.5 times their purchase prices. The stock rode down by as much as 23.28% in the same time frame, illustrating the kind of leverage that can be achieved with options.

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 was down 17.24% to $33.26 at the close today. The iconic motorcycle company reported weaker than anticipated earnings this morning before the open.