Trade Update $CAT: Closing July / Aug Put Calendar

by Dan July 7, 2015 9:38 am • Commentary

A few weeks ago we attempted to leg into a Put Spread in Caterpillar (CAT) by selling July downside puts to finance August that would catch their Q2 earnings, here was the trade from June 11th: 

TRADE: CAT ($88.25) Buy the July / Aug 85 Put Calendar for $1.10

– Sell 1 July 85 puts at .95

– Buy 1 Aug 85 put for 2.05

At the time we thought the stock would find some support at $85 and then give us the opportunity to roll the calendar into a vertical in August.  Well the stock has declined almost 7% in the last two weeks and is now well below our strikes, placing the spread worth basically what we paid (the move today turned it from a slight winner into a wash). The risk here is the stock continues to decline and the bearish leaning trade becomes a loser from becoming long deltas. That would be the worst possible scenario in my mind. I got the direction and the thesis right, but the timing very wrong. I am now going to close the trade and not risk suffering losses and look to put an outright bearish trade on a bounce in the stock, if we get one.

Action: Sell to Close  CAT ($82.44) July / Aug 85 Put Calendar at $1.10 for a wash*

*using a limit order at purchase price