High on the HOG at Goldman
"Buy HOG November calls ahead of analyst day and facility visit" is the title of a very short-term "Trade Idea" put out by Goldman Sachs Monday.
First reported by StreetInsider.com, the analyst suggests buying November at the money calls or straddles in anticipation that stock price volatility of Harley-Davidson will exceed the implied volatility of its options.
In other words, options are cheap.
According to a company spokesman, Wednesday is a one-day event for Harley-Davidson analysts including, a tour of its manufacturing facility in York, Pennsylvania.
Goldman anlayst writes:
"We believe this year’s analyst day is likely to be more impactful than normal as unexpected operating frictions from the York restructuring sent shares down 7 percent on 18-October when 3Q results were reported. ... we believe management is likely to further press the case that 3Q11 restructuring frictions were transitional in nature. We see the potential for estimates to rise around greater confidence on HOG’s restructuring execution."
Options traders are quick to note that HOG doesn't trade very much compared to index options or even single stock options such as Apple.
At the start of trading Tuesday, Tim Biggam, Trading Block Options Strategist says that there was just a little more buying today on HOG's $40 and $41 calls than usual, "... just 600 or 700 contracts, not big dollar amounts and the level of buying is muted."
Coming into today's trading, November $40 calls had the biggest open interest of any strike in HOG options run at 4,196 contracts versus open interest of between 1000 and 1500 for other strikes between $39 and $43, according to data provided by thinkorswim. Volume increased throughout the session on the $40 calls, trading over 2700 contracts going into the final hour of trading.
- CNBC Slideshow: Most Notable Harley-Davidsons
Biggam also notes that with big open interest around the $40 strike, we could some pin action around that price on Friday. Pin action denotes interest and activity that will keep a stock price at or near a specific strike price at expiration.
Bill Lefkowitz, vFinance Investments Options Strategist says, he doesn't usually like buying calls tied to investor conference events.
"Although the stock might go up a little, they seem to be more of non-event days," Lefkowitz says. "Goldman Sachs might be looking for some major announcements, but I can’t find out what those will be."
Shares of HOG dipped below $35 per share following a disappointing earnings report October 18 and are higher on the session, trading around the $40 level.
Follow Lori Spechler on Twitter: @LoriSpechler