CAT Analysis

Caterpillar Inc. (CAT)

Update 7/27/2017: CAT shares gapped upward after after earnings were published and then fell into an unprofitable sideways trend. I exited after three days for a loss in order to clear room within my options margin for other opportunities.

Shares rose by 5.7% over the the three days, or a +687% annual rate. The options position produced a 28.5% loss on debit for a -3,470% annual rate.

CAT publishes earnings on Tuesday before the opening bell.

I shall use options that trade for the last time 11 days later, on Aug. 4.

Implied volatility stands at 26%, which is 2.7 times the VIX, a measure of the volatility of the S&P 500 index.

CAT’s IV stands in the 57th percentile of its annual range and the 82nd percentile of its most recent broad movement.

The price used for analysis was $107.74.

Premium: $4.01 Expire OTM  
CAT-iron fly Strike Odds Delta
Long 116.00 93.7% 7
Break-even 224.00
Short 108.00 54.8% 47
Short 108.00 45.2% 53
Break-even 104.01
Long 100.00 87.2% 12

The premium is 50% of the width of the position’s wings.

The risk/reward ratio is 1:1.

Decision for My Account

I have entered an order on CAT as described above. The stock at the time of entry was priced at $107.60.

By Tim Bovee, Fukuoka, Japan, July 24, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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