Caterpillar Inc. (CAT) Traders Gamble On an Extended Retreat

Caterpillar Inc. (CAT) puts are trading at five times the average intraday pace

Mar 5, 2015 at 11:30 AM
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It's been a tough few months for Caterpillar Inc. (NYSE:CAT), which has shed nearly a quarter of its value since hitting its most recent high of $107.12 on Nov. 21, due to pressure from its 40-day moving average. The stock is extending this slide today, despite a broad-market uptick -- off 1% at $80.87 -- and options traders think there's more downside ahead.

Daily Chart of CAT Since November 2014 With 40-Day Moving Average

Taking a quick step back, puts are trading at five times what's typically seen at this point in the day, and are outpacing calls by a 3-to-1 margin. The round-number $80 mark is in focus today, with possible buy-to-open activity detected at CAT's weekly 3/27 80-strike and April 80 puts. By initiating these long puts, speculators expect the security to breach the strike price by the respective expiration dates.

Widening the sentiment scope reveals it's been call buyers who have been active in CAT's options pits. Specifically, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 0.89 ranks in the 80th annual percentile. Simply stated, calls have been bought to open over puts at a quicker-than-usual pace in recent weeks.

On the fundamental front, Caterpillar Inc. (NYSE:CAT) announced today it has taken a minority stake in analytics firm Uptake. This comes just weeks after the company said its subsidiaries are being investigated by U.S. authorities.


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