Earlier this year, Milwaukee-based motorcycle manufacturer Harley-Davidson (NYSE: HOG) unwittingly became the poster child for U.S. trade policy. The company was cited by European trade officials as an example of the type of American goods that would suffer if President Trump made good on his vow to place steep tariffs on steel and aluminum produced overseas.

The war of words placed Harley squarely at the center of a controversy that put downward pressure on its share price. After peaking above $55 in January, HOG briefly traded below $40 in early May. Since then, it has gradually risen to close at $45 this week as relations between the U.S. and Europe appear to be improving.

However, HOG still looks undervalued according to my IDEAL Stock Rating System which gives it a perfect score of 10 due to its dividend yield of 3.3%, strong cash flow, and forward PER (price to earnings ratio) of 12.7 – a third less than the multiple for the S&P 500 Index.

From a technical perspective, HOG has been achieving higher highs and higher lows for the past month while its RSI (relative strength index) recently crossed above 60. Its next resistance level is near $49, about 9% above the $45 strike price I am using for this trade.

According to Bloomberg, Harley’s sales in Europe have been mostly unaffected by the trade rhetoric. If so, then the primary reason for Harley’s share price decline may not have as much of an impact on this year’s sales as originally feared. We’ll get a better idea of how the year is shaping up when the company releases Q3 results on October 23.

I don’t expect that news to push HOG beyond $50, but I believe it will justify a share price above $45 which is all we need to earn an annualized options yield of nearly 18% on this trade.

Regardless of how many contracts you sell, it’s absolutely critical that you follow the instructions below, particularly when it comes to setting the limit order.

How to Make the Trade:

• Trade: Sell to open the January 18, 2019, $45 put option on Harley-Davidson (NYSE: HOG).
• Symbol: HOG190118P00045000
• Limit Order Price: a credit of $2.50 or more.

Tell your broker: “I want to sell a put on Harley-Davidson stock. Specifically, I want to ‘sell to open’ one $45 Put that expires on January 18 for a credit of $2.50 per share or more.”

Note: Sell one put for every 100 shares of Harley-Davidson stock you would be pleased to buy at $45 per share. Investors should set aside $4,500 per contract sold to buy the stock in case the option expires in the money.

Further Instructions Regarding the Trade:

• • If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least equal to the Limit Order Price specified above.
  • Place your limit order on a “good ’til canceled” (GTC) basis and be patient.