Construction machinery manufacturer Caterpillar (CAT) has traded flat over the past year, following a sizeable drop and rally over the past few months. One trader sees shares moving higher into the summer.
That’s based on the August $260 calls. With 127 days until expiration, 35,041 contracts traded compared to a prior open interest of 560, for a 63-fold rise in volume on the trade. The buyer of the calls paid $3.83 to make the bullish bet.
Share recently went for about $220, so the stock would need to rise $40, or about 18 percent, for the option to move in-the-money. That would put Caterpillar in the vicinity of its 52-week high of $266.04.
Such a move is possible given the current long-term rally in shares. The industry leader is reasonably valued at 13 times forward earnings, and grew revenues by 20 percent over the last year.
Action to take: Investors may like shares as a long-term buy here. Caterpillar is a dividend growth stock, with a current yield of about 2.2 percent right now.
Traders may like the August calls, as they play well to a multi-month move higher for shares. The option can likely deliver mid-double-digit returns before expiration. Traders may want to look to take profits following a jump higher. Such a move could occur around the end of April when Caterpillar next reports earnings.
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.