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Harley-Davidson is all the rage this morning on Wall Street as rumors of the company getting bought out by private equity firm KKR abound.

The rumors suggest that Harley-Davidson could be taken into private ownership if KKR’s rumored leveraged buyout (LBO) should materialize.

KKR is giving its standard “We don’t comment on deal speculation” reply, while Harley-Davidson reps could not be reached, which makes this rumor hard to confirm. True or not, Wall Street is acting like its the real thing.

Investors on Wall Street seem to be taken the rumor seriously, as Harley-Davidson’s stock is up 6% after being one of the most heavily traded stocks on the New York Stock Exchange today.

Adding more fuel to the fire was the increase in calls being made on HOG stock. Calls are basically a contract to purchase a stock made between two parties.

The contract gives a buyer the option to buy a certain amount of stock at certain price by a fixed date in the future, so when traders buy calls, they do so with the hope that the price will continue to rise.

Since most of the activity today is in these call options (set to expire in March & April), it suggests that Wall Street sees an immediate gain in Harley stock in the next 30 days or so. Since it’s unlikely that Harley is about to release great financials and sales numbers, the culprit for the trading is surely a buyout rumor.

KKR’s LBO could see the private equity firm buying Harley-Davidson stock at a premium, in an attempt to swallow up the company in one gulp.

This scenario would make sense with all the call option purchases, since KKR will have to pay considerably more than the market price to get all of Harley’s stock from its shareholders.

These investors are basically betting on this situation coming to fruition, and judging from the activity in the market, the expectation of this occurring is high. Compare that to the fanciful rumor going around about Ducati and Piaggio merging, which still have pegged at not very likely.

Source: Reuters via HFL