Put Buyers Pile On Caterpillar Inc. (CAT)

Caterpillar Inc.'s (NYSE:CAT) technical troubles have caught the eye of options traders

by Karee Venema

Published on May 19, 2016 at 3:34 PM
Updated on Jun 24, 2020 at 10:16 AM

Put buying has been picking up speed on construction concern -- and Dow stock -- Caterpillar Inc. (NYSE:CAT) in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, over the past two weeks, the stock's 10-day put/call volume ratio across these exchanges has jumped to 2.79 from 1.91. What's more, the current ratio rests in the 75th annual percentile, meaning CAT options traders have initiated long puts relative to long calls at a faster-than-usual clip.

Echoing this put-heavy backdrop is CAT's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 3.05. What this shows is that near-the-money put open interest more than triples call open interest among options slated to expire in three months or less.

Drilling down, CAT's June 70 and 72.50 puts make up its two top open interest positions, with more than 31,100 contracts collectively in residence. Meanwhile, in the front-month series, which expires at tomorrow's close, peak open interest of 11,717 contracts is found at the May 70 put. According to the major options exchanges, each one of these strikes has seen a significant amount of buy-to-open activity, meaning speculators are betting on short-term headwinds for the shares of CAT.

This skepticism is seen outside of the options pits, as well. Although short interest has declined 17% from the six-year high it was docked at in mid-December, it still makes up a healthy 7% of CAT's available float -- or 6.3 times CAT's average daily pace of trading. Elsewhere, 12 out of 13 analysts maintain a "hold" or "strong sell" suggestion toward the security, while the average 12-month price target of $68.29 stands at a discount to current trading levels.

Specifically, CAT was last seen down 1.7% at $69.43. To the delight of David Einhorn, this negative price action is just more of the same for a stock that's shed 14.2% since hitting a nearly nine-month high of $80.89 on April 19. Plus, unlike one sector peer, Caterpillar Inc. (NYSE:CAT) surrendered a short-term foothold atop its 200-day moving average -- a trendline that has created headwinds for CAT over most of the last two years.

CAT Daily Chart

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