Traders are now afraid to trade them and rightly so. Look at how low the open interest in the slighty "in-the-money" Caterpillar Call and Put options are going into todays trading session. An open interest of only 52 and 72 contracts.
It's the same thing for Deere.
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This time open interest numbers of only 71 in one series of slightly "in-the-money" Call options and only 20 in the Puts. Now their five day charts.
Note the $20.00 drop in Deere in one day. Moves like this can sometimes happen quickly.
With all this information we can now move forward. Look at how the Call options traded on these two stocks on Wednesday morning. After looking at them a few comments can be made.
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These initial gains of 46% and 21% are somewhat impressive. As the morning progressed the gains only got larger. Let's now look at the Caterpillar Call options at 12:49 p.m. The stock is up $9.68 and the Call option we are following are now up over 80%.
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While this gain is somewhat impressive these numbers have to be weighted by other concerns. Let me list three concerns. 1) The matter liquidity and more specifically the spreads between the "bids-and-asks". With a rising gain of over $9.00 dollars in a few hours the needle on these Calls have to go up. That's not a concern. The real concern is what happens when the stock starts to go sideways? Traders get trapped in a suddenly created new world of very wide "bids-and-asks". It's more of a concern the closer to the remaining two days before they expire. Forget trying to split the middle between the bid and ask if you want to get out. You might be stuck getting just the bid on a sell ticket. 2) The lack of ongoing chatter on both of these companies. At least with a stock like McDonald's there are always focused debates over issues as simple as the price points on their product offerings. With Caterpillar and Deere it's a different story. It gets even more confusing when their quarterly income reports come out and when their financial officiers come out with statements purposely designed to downplay any concerns. 3) Why are the recent swings in both of these companies so pronounced during last thirty days compared to previous periods of time? I don't know. That's a new concern. What I do know however is that the risk factor in playing either of these two companies options is over the moon. Get burnt once or twice trying to play them and you will never try it again. It's kind of like the experience many traders have had in trying to play Tesla options. Now look at how the Caterpillar $367.50 Calls closed the day.
Now Caterpillars five day chart.
The bottom line is only a small number of people in the entire world now look at Caterpillar Call and Put options as a viable trading platform. That to me somewhat suprising. *** a note on Thursday's action with the DJIA down
Look at how this one series of Puts reacted to this news.
Once again very few traders caught this action.
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