Here is it's five day, one month and "year-to-date" chart. Anyone trying to fight the downside on it last week lost in their battle. Call holders enjoyed a wonderful ride up and where richly rewarded.
It's next quarterly earnings report is due out Oct 29th. The last blog I did on Caterpillar was back on August 28th which ran with this caption.
This stock really didn't do much in the two weeks after that. So where it is now is kind of a surprise. Why aren't the tariff effects now hurting it? Haven't their raw material costs gone up? Now this, the interest in their one month out Puts. That buys you a lot of time. It buys you up until a few days before their quarterly report comes out.
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Nobody is playing the "one-month-out" Puts. How crazy is that! Nobody on this earth (well less than a handfull of people) find value in this trading vehicle. I just checked Tesla's "near-to-the-money" one month out Puts and the results were somewhat the same. There are only 210 open interest contracts open in the October 24th 435 Puts, which are priced at $30.01. They are a crazy high price. Nobody is thinking of the downside now. My feeling are that changes in directions sometimes happen with the passing of a weekend. What about the one week out Puts? Here is where things get a little bit more interesting. There is very light trading in them.
Caterpillar was up again $35.02 on the week. Let's finish off this deep delve by looking at the volumes on this upcoming weeks Calls. The interest in them is also very low.
What do I think? I think if Caterpillar decides to takes a pause tomorrow on the opening and drops in the $4.00 or $5.00 range the 450 Puts could then go from $1.25 to $170.00 or $2.00. They are a fair bit "out-of-the-money" and it would take this big of a move to cause this kind of a reaction. This isn't something I would have talked about during last week's "mid-week" trading session. Option traders were clever in not looking for any downside action last week. Caterpillar tends to be void of chatter so it seemed kind of eerie that it climbed to much. A stock like Boeing in contrast has chatter which tends to go both ways. Let's see how this plays out in the next couple of days. Here is what happened. Well it kind of happened. Caterpillar did open down but only down $4.43. That was enought to get the 455 series of Puts to pop 40%. They are the ones close to being "near-the-money".
The 450 series not so much. They only jumped to $1.62.
Can you see Caterpillar rebounded $1.60 in two minutes. At 9:48 a.m. here is it's trading action.
....................... now at 9:52 a.m.
So somewhere in the last four minutes these Puts jumped to a high of $1.82 from it's previous close of $1.25.
Now this. The stock is down another $.65 and the Puts are hanging tough. How much more does it have to drop before they increase in price even more?
Now here is a readout which is about as good as it's going to get. The stock is now down $6.52 and the Put options are not really increasing in price. They did go up another few cents.
This tells us something. Reality is starting to sink in. These options are still over $10.00 "out-of-the-money" so maybe it's all a pipe dream that this stock is still going to fall even more. The Put options are now facing resistance. The shock is out of it's fall. Perhaps it's time to get out. Now this. It's 11:00 a.m. and Caterpillar is swinging back up. The game of playing wildly "out-of-the-money short term Puts is now over.
By 11:23 a.m. Caterpillar is down only $.64 cents and the 450 Put series is down to $.86 cents.
So much for playing Monday morning dips on upward moving stocks using deeply "out-of-the-money" Puts. It's a difficult game to play. Here is how Caterpillar closed the day.
The 450 Puts are now history.
**************Remember the 465 Puts which closed the previous day at $5.08. Here is how high they jumped on the day before Caterpillar turned around to regain it's loss. They hit a high of $8.00.
Both were high risk.
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