Option Bears Stay After Struggling Caterpillar Inc. (CAT)

Option bears continue to flock to Dow stock Caterpillar Inc. (NYSE:CAT)

Jul 5, 2016 at 3:30 PM
facebook X logo linkedin


Skepticism has been picking up toward Dow stock Caterpillar Inc. (NYSE:CAT) for months, as the shares have tumbled. Year-over-year, CAT is down close to 11%, which includes today's 3.1% drop at $74.04 -- putting it near the bottom of the Dow. In the meantime, interest in CAT options has continued to grow, as traders use both puts and calls to bet against the struggling stock. 

For starters, put buying has more than doubled call buying during the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting 50-day put/call volume ratio of 2.33 ranks in the 74th annual percentile. 

This trend is continuing today, with CAT's single-day put/call volume ratio coming in at 3.78, ranking in the 97th annual percentile. The July 74 put is the most popular option, followed by the September 72.50 put, and January 2017 65-strike put -- and potential buy-to-open activity may be transpiring at all three strikes.

Looking closer, while put open interest is historically elevated -- in the 98th annual percentile -- call open interest actually sits at the top of its 12-month range. This is partially the result of traders selling to open options, betting on potential layers of technical resistance. According to data from the major exchanges, 10,842 calls have been sold to open in the past two weeks, compared to 7,112 that were bought to open -- indicating bears have found yet another way to wager against CAT.  

However, now appears to be a much better time to buy premium rather than sell it -- particularly with respect to short-term options. The stock's Schaeffer's Volatility Index (SVI) of 22% ranks below 96% of the past year's readings, suggesting CAT options are relatively cheap, from a volatility standpoint. 

Outside the options arena, short sellers also have had their eye on the Dow stock. Short interest has edged higher in the previous reporting periods, and it would now take these bears essentially two weeks to cover their positions, at CAT's average trading volumes. This downbeat view is shared by analysts, as just one of 14 recommends buying Caterpillar Inc. (NYSE:CAT) shares.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI