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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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Options On Stocks In The Fifteen And Twenty Dollar Price Range With Seven Days To Go And Not Five Days To Go.

I should have called this blog "Ford Calls" or "Harley Davidson Calls" to get more hits but this time I want to show you something a little bit different. What I want to show you is how options with seven days of trading life left in them can suprise. Seven days and not five days. What's the big difference? Well the extra day buys you the action of a Friday bounce without having to worry about your option position expiring that day. Seven and not six days also. These options would need to be bought on a Thursday before the close. This may sound kind of confusing but let me show you two examples of what played itself out last Friday. Let's first use the stock Harley Davidson and use it's Call options as an example. Here is how "seven-day-out-Call-options" would have traded the day later on Friday February 12th.
They jumped 60% in one day! What kind of a jump in the stock's price would have caused that to happen? Well let's look at it's five day chart.
That's not really all that much of a jump. Harley did jump 3.65 percent in one day however it frequently does that. Now a second example. A stock in the $14.00 range. Look a Ford's five day chart.
It also moved up on Friday. Look at how it's six day out options traded on the day. This time I am showing you two series, one series "in-the-money" and on series slightly "out-of-the- money". Both went up however the "out-of-the-money" Calls went up more. Buying in on the Thursday just before the close would have got you into this action.
Both of these stocks have excellent liquidity in their options. That's important in getting decent fills. I could show you a couple of drone stocks in this price range with their options lacking in liquidity. This would make the exercise of doing these kinds of trades more difficult. Keep this blog in your bag of tricks going forward. ** I also note that this kind of an approach is less relevant when playing options on stocks in higher price ranges.

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