This morning, I’m recommending a bearish put option on Harley-Davidson, Inc. (NYSE:HOG).
Last Friday, I recommended a bullish trade because I was worried investors everywhere were becoming too bearish. In a survey by the American Association of Individual Investors (AAII), 44% of respondents said they were bearish, which is significantly higher than the historical average of 30.5%.
Generally, that is a sign that people have moved too far to one side. One “bullish” factor I didn’t discuss was the development in the ongoing U.S.-China trade war. Last week, President Trump and Chinese Vice Premier Liu He met at the White House.
The outcome of that meeting was positive. The U.S. delayed a scheduled tariff increase and China agreed to buy more U.S. agricultural products. But as with all trade news, I take it with a grain of salt. We’re already running into hiccups with that positive development.
I want to recommend a bearish trade on HOG as protection because it has been particularly vulnerable to all trade discussions.
HOG’s Struggles in Europe and China
Well over one year ago, President Trump’s administration placed tariffs on steel and aluminum imported from the EU. One company hit in the EU’s retaliation was HOG. The EU increased its 6% tariff on U.S. HOG imports to 31%, and those tariffs are still ongoing. They are also scheduled to go up in 2021.
HOG has been struggling ever since, and it has also cited the trade war with China as a contributing factor. This makes it particularly sensitive to trade issues, and the U.S.-China trade war has been a roller coaster.
After a positive report on Friday, China has requested another round of talks before signing onto the first phase of the trade deal from Friday. As I said, I take positive news with a grain of salt.
And trade with Europe doesn’t look much better, the World Trade Organization (WTO) has formally backed new U.S. tariffs against billions of dollars of products imported from the EU, meaning the trade war on that end is likely to continue.
Can HOG Hold on to its September Gains?
HOG gained over 14% in the first few weeks of September — on optimism around trade — but it got rejected in the $36-$37 range, which has served as resistance since June. Optimism around the U.S.-China trade situation can only carry a stock so far.
Daily Chart of Harley-Davidson, Inc. (HOG) — Chart Source: TradingView
Now that the good feelings are starting to fade and doubt is re-entering the market, will HOG be able to maintain the momentum from its bounce off $33 last week? It doesn’t look like it.
Not only is the broader market down this morning, but HOG is dropping with it as of this writing. A bearish put option is the best way to capitalize.
Buy to open the Harley-Davidson, Inc. (HOG) Jan. 17th (2020) $30 Puts (HOG200117P00030000) at $1.10 or lower.
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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.