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Jan 6 / Stocks - CAT
Strategies Mentioned : Married Put, Naked Put. Spread,
Collar
Question About Caterpillar Naked Puts
Strategy Article
I recently received this
question from a reader. I don't give out specific trade advice but I
did think this was worth a look.
QUESTION: Teddi,
Have you looked at CAT? I am looking at $90 Jan Puts, currently
(1-5-11 @ 9:30 CST) trading at $0.78, stock is trading @ $93.75
Earnings announcement not until Jan 27, so expiration is before
then. CAT has been in strong uptrend for some time. Appears as a
good trade. Your thoughts? ANSWER: I don't give out personal recommendations as it is
important for every investor to develop their own goals and
strategies. However I don't mind giving an opinion. Remember this is
not financial advice or recommendations. Trade at your own risk.
Caterpillar was a stock I loved in 2009. I sold out at $75.00 and
have not looked at the stock since. First a look at the 1 month
chart. Could CAT be in for some trouble?
This next chart is a
3 month view. It's easy to see the two levels of support and where
the safe zone sits for those who want a little more premium. As a
short term trade for two weeks is the $90 naked put strike
worthwhile? For .78 cents the return is 0.86% which isn't bad. But
at this lofty level it would be easy for the stock to fall below
$90.00 within two weeks. However if someone wanted to own this stock
and liked caterpillar at these levels ($90.00) then I see little
wrong for two weeks. Would I do it? Absolutely not. I am not
interested in owning Caterpillar at these levels. I believe it is
over valued here. I prefer Feb $85 naked put strike which is paying
over $1.00. But overall Caterpillar is too expensive for me, at
these levels. As it does not interest me it will not be added to my
stock portfolio.
