Downgrade Keeps Pressure on Caterpillar Stock

Caterpillar puts look pricey compared to calls

Aug 8, 2019 at 10:09 AM
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Caterpillar Inc. (NYSE:CAT) shares have been under pressure during the recent market pullback, and a Goldman Sachs downgrade has the Dow stock in focus again today. The brokerage firm cut its rating to "neutral" from "buy" and lowered its price target to $130 from $156, citing headwinds from production cuts in North America and China.

CAT stock is trading down 0.2% at $120.60, losing more than 10% in just the past month to trade almost 12 points below the 20-day moving average. The $120 level is an important one, as it's been a floor for the shares since December. Moreover, Caterpillar was teetering on oversold territory coming into today, with the 14-day Relative Strength Index (RSI) sitting down at 30.

Still, call buying has started to pick up in the options pits. The 10-day call/put volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has moved up to 1.77, ranking in the 69th annual percentile. Put buying was the more popular trend just two weeks ago around the company's disappointing earnings release.

And indeed, the Schaeffer's put/call open interest ratio (SOIR) of 1.19 shows a put-skew among options expiring within three months, and this SOIR ranks in the 98th annual percentile, showing such a put-skew is very rare. Peak open interest in the front-month August series sits at the 130 put. However, the 30-day implied volatility skew of 18.5% suggests puts are relatively expensive compared to calls, since it ranks in the 97th annual percentile.


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