2nd Trade Update March 29th, 2012: Since initiating this trade a bit more than a month ago, the stock has sold off about 10% and in a lot of ways been very instructive to how I have been looking at the broad market over that time period…..My premise was that CAT at all time highs, and Crude oil above $105 would likely start to worry investors.
I paid 1.00 for a $5 wide Put Spread that is now worth $3.35 or about 2/3 the width of the spread. I am going to take off the second half of this trade at 3.35 for an avg gain of 2.00. With the stock down below my short strike, I will look for a bounce to re-short.
Update March 6th, 2012: Since putting this trade on 2 weeks ago, the stock has dropped about 8% and is testing the the lower strike of my Apr 110/105 Put Spread that I bought for $1.00. With the stock down on growth concerns in China this week, I want to take my cost off of the table and let the other half ride. With the stock trading at $105.70, I sold half of my position at 2.65 for a 1.65 gain, now I can’t lose on the position.
Original Post Feb 24th, 2012: CAT vs Crude
Here’s a preview of what I’ll be discussing on Options Action tonight at 5pm.
- Since bottoming in Oct the stock is up almost 70%, crude is up 44%.
- Cat is making new 52 week highs almost every day but on relatively light volume….
- It’s not an expensive stock, trading at 12.25x this year’s expected earnings (28% yoy on sales that are expected to grow 18%.)
- 30 day realized vol at bout 18 is the lowest it has been since Jan 2011.
- 60 day implied vol is about 25.5 which is cheap to the 60 day realized at about 30.
- Buy 1 Apr 110 Put for 2.40
- Sell 1 Apr 105 Put at 1.40