Shares of construction equipment manufacturer Caterpillar (CAT) have lost about 8 percent in the past year. One trader sees a rebound in shares in the coming months.
That’s based on the December $195 calls. With 60 days until expiration, 6,818 contracts traded compared to a prior open interest of 333, for a 21-fold rise in volume on the trade. The buyer of the calls paid $6.88 to get into the trade.
Caterpillar shares recently went for about $183, so they’d need to rise $12, or about 6.5 percent, for the options to move in-the-money. The stock has strongly come off a 52-week low near $160 in the past few weeks.
The company has been a steady performer in an uncertain economy. Revenue is up 11 percent in the past year, and earnings have risen by 18 percent. And while shares are down overall, they’ve outperformed the S&P 500 by 10 points in the same timeframe.
Action to take: Shares are attractive at under 13 times forward earnings here. Long-term investors can get a 2.6 percent starting dividend, with room for further growth in the years ahead.
For traders, shares have started moving higher, and could continue to do so. That leaves the December $195 calls well positioned for mid-double-digit gains in the coming weeks. Given the current market volatility, it may make sense to grab lower returns and take quick profits after a big one-day jump in shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.