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
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