Caterpillar Options Bears Strike During Sell-Off

Analysts have yet to weigh in on Caterpillar earnings

by Karee Venema

Published on Jan 28, 2019 at 10:07 AM

The shares of Caterpillar Inc. (NYSE:CAT) are driving broad-market losses this morning, down 8.9% to trade at $124.71, and the worst stock on the Dow so far. The swing lower comes after the construction concern's disappointing fourth-quarter earnings report, with Caterpillar hinting at the negative impact of the U.S.-China trade war.

Looking at the specifics, Caterpillar reported fourth-quarter adjusted earnings of $2.55 per share, much lower than the $2.99 per share analysts were expecting. And while quarterly revenue of $14.34 billion arrived in-line with the consensus forecast, it said Asia/Pacific construction industry sales fell 4% year-over-year, citing "lower demand in China." CAT also said full-year per-share profit will arrive between $11.75 and $12.75, compared to the average estimate of $12.73.

Today's post-earnings move is likely catching several CAT bulls off guard. In fact, several options bulls appear to be closing out of their February 125 call positions in early trading today. What's more, a number of traders seem to be betting on this downside to continue through Friday's close -- a time frame that encompasses high-level U.S.-China trade talks in Washington -- with buy-to-open activity detected at the weekly 2/1 120-strike put.

Analysts, meanwhile, have yet to weigh in on CAT earnings, though there's certainly room for a round of downward revisions. While 10 of 17 analysts maintain a "buy" or better rating on the stock, the average 12-month price target of $152.15 is an 18% premium to current trading levels.

Looking at the charts, CAT stock had made a solid run higher off its late-December lows, but had found familiar resistance near $136 -- home to its Oct. 18 bear gap close. Plus, the shares recently rallied into their 160-day moving average, a trendline that's had historically bearish implications for the equity.


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