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.
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