Unusual Options Activity: Caterpillar (CAT)

Construction equipment manufacturer Caterpillar (CAT) has been on a tear, with shares hitting a new all-time high in recent sessions. One trader sees the rally continuing in the coming months.

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  • That’s based on the November $310 calls. With 77 days until expiration, 25,633 contracts traded compared to a prior open interest of 415, for a 62-fold rise in volume on the trade. The buyer of the calls paid $4.25 to make the bullish bet.

    Shares recently traded around $280, so they would need to rally $30, or about 11 percent, for the options to move in-the-money.

    Even with a strong rally over the past year, Caterpillar looks reasonably valued, if not undervalued, at about 15 times earnings. And revenues grew at 22 percent compared to the prior year’s most recent quarter, leaving shares priced under the company’s growth.

    Action to take: Long term investors interested in shares may want to buy a stake now, and use any future pullback as a buying opportunity. Caterpillar also yields about 1.8 percent at current prices, and has a history of dividend growth. Caterpillar tends to move steadily higher over time, making for a great long-term holding.

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  • For traders, the current uptrend looks likely to continue. That plays well with the November $310 calls, which could see high-double-digit returns or better before expiration.


    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.