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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 in point is this "on-the-cusp" of being "in-the-money" Puts which expire on July 3th. Notice the open interest going into today's trading.
Needed now is a drop of about $13.00 just to break even. A smaller drop would also help these Puts if it happened this afternoon or on tomorrow's opening. Stocks reaching and breaking through the $1,000 dollar range can often have explosive one day upper spikes. I captured that action last week. We are beyond that stage now. Let's see what happens.

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