Bears ride high as Harley hits skids

Harley-Davidson fell sharply today on weak sales numbers, handing huge gains to traders with downside option positions.

On July 5, Investitute’s tracking systems detected the purchase of 4,500 July $55 puts bought for $2.31 to $2.56 with shares at $54.26. Open interest in the strike was only 474 contracts before the activity appeared, showing that this was fresh buying.

Today those puts traded as high as $8.55, more than tripling in value. The stock retreated 14.7 percent in the same time frame, illustrating how options can far outperform 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 5.87 percent today to close at $48.95. The motorcycle icon lowered its outlook while reducing shipments amid weak demand.