HOG November 14th Options Begin Trading

The article outlines two options strategies for Harley-Davidson (HOG), currently priced at $28.78. Selling a $25.00 strike put for $0.50 offers an effective acquisition price of $24.50 or a 16.96% annualized return if the contract expires worthless, with an 81% probability of this outcome. Alternatively, a covered call strategy involving selling a $29.00 strike call for $1.75 against HOG shares yields a 6.85% return if exercised, or a 51.56% annualized boost if the call expires worthless, with a 48% probability. Implied volatilities for these options range from 50-52%, exceeding HOG's 43% trailing twelve-month actual volatility.

Analysis

The provided text outlines two distinct options strategies for Harley-Davidson (HOG), currently trading at $28.78, that leverage elevated implied volatility. The first strategy, selling a cash-secured put with a $25.00 strike, offers investors a way to potentially acquire the stock at an effective cost basis of $24.50, a 13% discount to the current price. Alternatively, should the option expire worthless, a scenario with an 81% probability according to the data, the seller would realize a 16.96% annualized return on their cash commitment. The second strategy involves writing a covered call at a $29.00 strike against existing shares, which could generate a 6.85% total return if the stock is called away, or a 51.56% annualized yield on the premium if the option expires worthless (a 48% probability). A key analytical takeaway is the spread between the options' implied volatility (50-52%) and the stock's trailing twelve-month actual volatility (43%). This premium in implied volatility suggests options are richly priced relative to recent historical price action, making option-selling strategies particularly attractive for generating income.

Key Decisions for Investors

• Investors with a bullish outlook on HOG who are seeking a lower entry point could consider selling the $25.00 strike put, which either generates a 16.96% annualized yield or facilitates acquiring shares at an effective price of $24.50.
• Current HOG shareholders with a neutral to moderately bullish view can generate significant income by writing the $29.00 covered call, capturing a potential 51.56% annualized yield from the premium if the stock remains below the strike price.
• Given that implied volatility of 50-52% exceeds the 43% historical volatility, strategies that involve selling options are favored, but investors must be prepared for the possibility of assignment on the put in a sharp downturn or capped upside on the covered call in a strong rally.