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Call Volume Revs Up on Harley-Davidson

HOG sees a spike in front-month call volume

by 12/11/2012 2:11 PM
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Harley-Davidson, Inc. (NYSE:HOG - 47.80) has been targeted by bullish bettors today, as roughly 12,000 calls have crossed the tape so far, which is 21 times the norm. By contrast, just over 300 puts have been exchanged. Some of these traders may be attracted to the fact that HOG's front-month options are reasonably priced right now, as the equity's Schaeffer's Volatility Index (SVI) of 25% sits just nine percentage points above a yearly low.

Most active has been the December 48 strike, where close to 5,100 calls have changed hands -- the majority of them at the ask price, suggesting they were bought. These near-the-money contracts traded at a volume-weighted average price (VWAP) of $0.56. Because this option currently holds open interest of just 571 contracts -- and implied volatility was last seen 1.6 percentage points higher -- it's likely that new positions are being added here. By purchasing these calls to open, traders are betting on the stock to rise above $48.56 (strike price plus the VWAP) by front-month expiration.

This preference for calls over puts is par for the course. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day call/put volume ratio of 1.39 for HOG, confirming calls bought to open have outstripped puts during the past few months. This ratio ranks higher than 75% of other such readings taken within the past year, meaning traders have been scooping up calls over puts at an accelerated clip.

Most of the analysts covering the motorcycle manufacturer seem to share this optimistic attitude. HOG sports nine "strong buys" and two "buy" recommendations, compared to three "holds," and zero "sell" suggestions. Moreover, the equity's average 12-month price target stands at $54.25, representing expected upside of more than 16% to yesterday's closing price of $46.66.

From a technical perspective, HOG has climbed about 23% so far this year, and has outperformed the broader S&P 500 Index (SPX) by nearly 13 percentage points during the past 40 sessions. Meanwhile, a look at the charts shows that the stock is poised to finish the session atop its 10-day moving average for the first time since late November.

At last check, HOG has climbed 2.4% on the heels of appointing Michael Cave -- an executive at The Boeing Company (NYSE:BA) -- to its board of directors.


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