Wednesday, September 15, 2010

Harely-Davidson (HOG) - Low Vol Pattern and Heavy Volume Presents Opportunity

HOG is trading $28.06, up 2.2% with IV30™ up 0.7%. The LIVEVOL™ Pro Summary is below.

The company has traded over 20,000 options in the first two hours on total daily average option volume of just 6,089. Calls have traded on a nearly 10:1 ratio to puts, with the Sep 28, Oct 29-31 calls being the most active. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that all the calls are mostly opening (compare OI to trade size). The best I can tell, Oct 29, 30 are long interest, Oct 31 is short, and Sep 28 is ambiguous to me.

Note that the Oct calls all traded ~40 vol (or a bit below).

The Skew Tab snap (click to enlarge) illustrates the vols by strike by month.

We can see the upside in Sep with just a couple days to go to expo is pretty bid. The Sep 29 calls are quoting 50 vol and the Sep 30's are quoting 70 vol, though that's just a $0.03 bid, so no real "information" there in my opinion.

We can also see that the upside in Oct (highlighted in the skew chart) looks pretty normal, with just a hint of a curve back up near the tail.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

The stock has been range bound of late, though it is a pretty wide range of ~$22 to ~$28. We can see the stock gapped up on earnings pushing the short term realized above the implied. Long term realized vol is 45, so the Oct trades are fairly discounted to that. HV90™ (51) is even higher than HV180™ making the Oct trades feel even cheaper.

Possible Trades
For a bullish bet on low vol, an Oct 25/31 risk reversal (sell puts/buy calls) can go up for a small credit while selling 46 vol and purchasing 40. The Oct 28 straddle is worth about $2.60, which if the trend continues would be less than the stock could move by Oct expo.

This is trade analysis, not a recommendation.

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