CAT Analysis

Caterpillar Inc. (CAT)

Updte 5/1/2017: CAT gapped sharply to the upside after earnings were published and continued trading largely above the initial gap. I exited for a loss as the options neared expiration.

Shares showed a net rise of 5.3% over seven days, or a +276% annual rate. The options position produced a 30.7% loss on debit for a -1,601% annual rate.


 

CAT publishes earnings on Tuesday before the opening bell.

I shall use the series of weekly options that trade for the last time 11 days hence, on May 5.

Implied volatility stands at 26%, which is 2.3 times the VIX, a measure of the volatility of the S&P 500 index.

CAT’s IV stands in the 51st percentile of its annual range and the 50th percentile of its most recent broad movement.

The price used for analysis was $96.96.

Premium: $3.25 Expire OTM  
CAT-iron fly Strike Odds Delta
Calls
Long 103.00 91.0% 10
Break-even 100.25
Short 97.00 52.3% 50
Puts
Short 97.00 47.8% 50
Break-even 93.75
Long 90.00 90.8% 8

The premium is 51% of the width of the position’s wings.

The risk/reward ratio is 1.2:1.

Decision for My Account

I have entered a position on CAT as described above. The stock at the time of entry was priced at $96.93.

By Tim Bovee, Portland, Oregon, April 24, 2017

2 thoughts on “CAT Analysis

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