When you see Caterpillar drop over $21.00 dollars in one day with an earning report soon to be coming out what does that tell you? One could speculate that some institutional traders who own 71-72% of the outstanding shares are selling their shares and saying thank you for a good ride. Get out before it's earnings come out.
It's a double in price in less than one year event. It could be said that the reason it has gone up so much is because everyone is waiting for the war in Europe to come to an end. The equipment that Caterpillar produces will be needed in the ensuing rebuilding process. This is forward thinking which has little to do with this years earnings. Now this printout.
Friday's volume of trading in this one series of Call options was 100 contracts. That's a suspicious number. It could be one institutional trader trying their luck on selling short fifty contracts on this one series of Calls to then close them out later in the day. That would be a straight forward strategy to employ.
Caterpilllar is a stock void of news releases and general chatter. It is a stock seldom in the news for lawsuit issues. Now shown below is the action on Caterpillar Puts on Friday morning at 10:16 a.m. I have a beef with the spreads in the option pricings of these "near-to-the-money" options .
I see a spread on the "bid-and-ask" of $3.45. This makes it difficult to buy into and sell out of if you are looking for the stock to drop another two or three dollars or if you are looking for an interday reversal in the stock's price of the same amount. In contrast stocks like Exxon or Walmart have very tight spreads on their "bids-and-asks". Even a one dollar swing in either of these two stocks could create a profitable "get-in" and "get-out" trade. Now the closing readout of the same 642.50 series of Caterpillar Puts. The stock kept dropping on the day. The Puts were up 550% in one day and so few traders caught the action! My whining about excessive spreads is in a way, kind of a mute point.
Here is Caterpillars five day chart.
It's 90 day chart is now also appropriate to look at.
Option trader's in general are looking for easier trading opportunities. What do I expect to see from this weeks earning numbers? Maybe a squeeze on the profit numbers with tariffs making it more expensive to build things. Yet the good news is that for the most part they can pass on these costs to some segments of their end users. "Caterpillar 797 mining trucks" are now in high demand by gold mining companies. These customers can afford to pay almost anything to get them. ** Now this at 1:20 p.m. on Monday. The stock is now up over $ 8.00 on the day with $3.00 of that increase happening in the last twenty minutes. Here are two series of Puts to now look at.
Yes they are super expensive and one series has no daily volume of trading in them. Tuesday's action didn't change things very much.
I am suprised that the Put options didn't lose more value. To be continued.
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