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Why The Appeal Of Trading Caterpillar Options Is Now Diminishing

In previous blogs I looked at Caterpillar spiking upwards through the $1,000.00 barrier for the very first time. Twenty and thirty and forty dollar daily jumps on the stock were the norm. Today we are entering more sobering times. Pundits are now commenting on the upcoming release on August 4th of Caterpillar's quarterly earning report. That is not far away. The stock has doubled in price in a relatively short period of time. Is the party over? Look at Caterpillars one year chart. The companies earnings have not doubled in the last year. Far from it. So now what? Buy a Put option thirty days out in the hopes the stock might drop ten percent on a more normalized earning's report? Maybe. Here is an example of the cost of what one of these Puts would look like. Given it's current bid and ask the stock would have to drop to the $1,005.00 just to break even. It could, however most active option day traders are seeking opportunities which can play out in hours or in a day. Case...
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We Take Risks Everyday.

We take risks everyday.This morning for example I poured myself a cup of coffee which I held in one hand and I also picked up one of my laptops sitting on a couch by grabbing it by one of it's corners. Then I put down my coffee cup and picked up my cellphone and placed it on my laptop. I then managed to pick up my laptop once again and held it face up so the phone would be less likely to slip off it. With my other empty hand I picked up the same coffee cup and then carefully carried all three of these items from my livingroom to my bedroom. It saved me making two trips. In hindsight that was a stupid move to make. In this decision making process my brain was telling me that I have two laptops and that the second one is more valuable so if I dropped the first one and broke it then that wouldn't be the end of the world. It's funny why it would think like that. My brain was almost tempting me to take that risk. Also, if my cell phone slipped off my laptop and hit the floor while I was carrying it, then it would most likely survive the crash. It's in afterall a protective covering. When thinking about taking a risk my brain, without being prompted kicks into overdrive and magically thinks of many of the variables in play. In this case it was reminding me that the coffee cup was only about one third to three eights full so the odds of some of the coffee swishing out of it and making a mess was not all that great. It was also reminding me that I had a gentle landing spot for my laptop when I got into the next room and the path to get there was free of obstacles. I knew that my cellphone had a rubbery protective cover around it which would make it somewhat slip resistant. My confidence level was high. I did not have to second guess why I was trying to move three things at once. It is only now as I write this story I realize that the rubbery cover I thought my phone has is actually like a 90% slippery plastic. Looking at it now I realize that it doesn't even have a protective cover at all. I took it off months ago to clean it and never put it back on again. What does all this tell me? It tells me that our brain works on assumptions which are sometimes not correct. There is a risk in every option trade you make. Warren Buffett aged 95 knows this and he often says that you can't predict with any certainity which way a stock is going to move next. Making predictions in option trading is in part an exercise in looking for repeatable occurances. If the stock G.M. jumped on good earnings and if Tesla jumped on earnings that apparently were good enough, then why wouldn't the stock Ford jump upwards after an entire week of the good news about the state of the U.S. auto industry? Here once again is it's five day chart.
Here is how the 12 series of Ford calls traded on Thursday and again on Friday.
Sometimes it's worth it to take a risk if your brain thinks that it recognizes a recurring trading pattern. Ford was up 12.16% percent on the week and closed at $13.84, a 52-week high. On the NYSE Ford was the most actively traded stock by share volume. The Call options popped like crazy. I would suggest that you follow more closely the quarterly earning reports of these three auto companies.

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