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History Says Hop Off Harley-Davidson Before Earnings

Andrea Kramer

Motorcycle manufacturer Harley-Davidson Inc (NYSE:HOG) will report earnings before the open tomorrow, April 23. Ahead of the event, HOG shares just flashed a historically bearish signal on the charts, and it looks like options traders today are rolling the dice on a negative earnings reaction.

HOG stock has moved more than 18% higher in the past month. However, the equity is now within one standard deviation of its 320-day moving average, after a lengthy stretch below this trendline (it hasn't been toppled on a daily closing basis since early 2018). There have been three similar run-ups to this moving average in as many years, after which Harley stock was lower one month later by 5.34%, on average, per data from Schaeffer's Senior Quantitative Analyst Rocky White. At last check, HOG is down 2.1% to trade at $40.01 today.

HOG stock chart april 22

Meanwhile, HOG moved lower after its last two earnings reports, dropping 5.1% in one session after reporting in January. Over the past eight quarters, the security's one-day earnings reaction was negative five times. On average, HOG swung 4.7% the day after earnings over the past two years, regardless of direction. This time around, the options market is pricing in nearly twice that, with implied volatility data pointing to an expected 9.3% swing for the shares.

As alluded to earlier, options traders appear to be betting on a swing lower for HOG. So far today, the equity has seen roughly 7,700 puts change hands -- seven times its average intraday pace, and more than five times the number of calls traded. Most popular is the weekly 4/26 38-strike put, where it looks like traders are buying the contracts to open. By doing so, the buyers will profit the further HOG shares sink beneath the strike before the options expire at Friday's close.

But today's appetite for long puts merely echoes the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where speculators have bought to open more than two HOG puts for every call in the past two weeks. Still, the bearish bandwagon is far from crowded. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.00 is higher than just 19% of all other readings from the past year, indicating that near-term traders are still more call-heavy than usual, looking at open interest among the front-three months' series of options.