OptionsHouse

Options Trading News

November 1, 2013  Fri 4:14 AM CT

CAT: SEE CHART GET CHAIN FIND STRATEGIES
A huge put spread is looking for a sizable drop in Caterpillar.

optionMONSTER's Depth Charge system shows that more than 20,000 each of the May 70 and 60 puts traded yesterday in volume far above previous open interest in each strike, indicating new positioning. The big blocks of 16,409 in each contract saw the 70s bought for $1.31 and the 60s sold for their bid price of $0.36.

The trader paid $0.95 to establish this vertical spread, which is its maximum potential loss. The maximum possible gain is $9.05, which would be realized if CAT is below $60 by mid-May 2014.

The delta of those 60 puts suggests just a 5 percent probability that CAT will be at those levels. This could be an outright bearish play or a hedge against long shares. (See our Education section)

CAT was down fractionally yesterday to close $83.36. The construction and mining equipment giant traded above $89 last week before earnings. The stock, which has support around $82, was last below $70 in 2010 and below $60 in the middle of that year.

More than 64,000 CAT options traded on the day, 3 times the daily average over the last month.
Share this article with your friends


Related Stories

CAT

Caterpillar trades see near-term floor

February 2, 2016

Short-term trades are betting that further declines will be limited in the construction-equipment giant, which reported mixed quarterly results last Thursday.

OptionsHouse

TRADING WEEKLY OPTIONS

The fastest money in the market
View full report »

Premium Services

Upcoming Webinar:

How to Defend Your Portfolio and Profit in a Market Selloff

http://bit.ly/1OSMWU6

Jon Najarian and Sandy Chaikin of Chaikin Analytics demonstrate how to play defense when the market is selling off. And, how to turn misery into money, whether investing in stocks or trading options.

Education & Strategy

The sweet spot

When using the Stock Replacement Strategy, we must remember that in reality, we are doing a STOCK trade. We are just using options. We are replacing the stock position with an option position (long calls).

View more education articles »