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Option traders in today's session are forecasting an earnings win for Caterpillar Inc. (NYSE:CAT) by scooping up the stock's weekly 4/26 82.50-strike calls. The majority of the roughly 2,000 contracts traded have gone off at the ask price, and only 342 positions are currently open here. In other words, it's safe to assume that a number of these calls are being bought to open.
By purchasing the calls, traders expect CAT to rise above the $82.50 mark by next Friday's close, which is when the weekly options expire. More specifically, the out-of-the-money calls will become profitable with each step north of $83.42 (strike plus volume-weighted average price of $0.92) CAT takes through expiration, or 3.6% above the stock's current price of $80.50. Delta for the call is docked at 0.33, or 33%, suggesting a 1-in-3 chance the position will be in the money by the time the closing bell rings next Friday.
Widening the sentiment scope reveals that option players have been bullishly aligned toward Caterpillar for some time now. During the course of the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 148,374 calls, compared to 111,184 puts. The resultant call/put volume ratio of 1.33 ranks higher than 92% of other such readings taken in the past year, implying calls have been accumulated over puts at a near annual-high clip throughout the last 10 weeks.
This optimism is a bit surprising given Caterpillar Inc.'s technical backdrop. The stock has been declining since hitting its year-to-date high of $99.70 on Feb. 1, with the shares off 19.2%. This downward trajectory has been highlighted by the equity's 10- and 20-day moving averages, which have applied steady pressure to the stock since mid-February.
Fundamentally, Caterpillar Inc. (NYSE:CAT) will follow in the recent footsteps of fellow Dow components Microsoft Corporation (NASDAQ:MSFT) and International Business Machines (NYSE:IBM), and unveil its quarterly results ahead of the opening bell on Monday. The company has had mixed results in the confessional, but the stock has experienced modest moves to the upside in the sessions following each of its past three reports. For CAT's first quarter, Wall Street is calling for a profit of $1.40 per share.
Meanwhile, Caterpillar announced today that sales of its construction and mining equipment fell 11% globally in the first quarter, thanks to depleting demand in North America and Asia.