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Today’s chart is of Caterpillar (CAT) which manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide.
Ticker: Caterpillar (CAT)
Strategy: Aggressive Straddle Trade, i.e. Feb-01 95-strike straddle
What I Am Looking At:
- Industrials Select Sector SPDR (XLI) up nearly 7 percent year-to-date
- CAT also up nearly 7 percent year-to-date
- Reports earnings Monday, January 28th before market opens
- Over the past 10 years the average maximum one-day reaction to earnings is 5.6 percent (absolute value)
- Currently the 95-strike straddle (weekly Feb 1st series) pricing in a move of 3.6 percent
- $116.50-117.00 all-time high area made in 2011 and 2012
- Recent rejection from 50 percent retracement of the 2012 top to the 2012 bottom but shares still remain in a short-term uptrend
- Peak put interest and large call open interest reside at the 95-strike, any unwinds could create dramatic moves in the shares
- Short interest has increased 60 percent since March of last year, represents nearly 3 percent of the float
- 9 out of 20 analysts rate the shares a “strong buy”
- 50-day buy-to-open put/call ratio is .90, no extremes in sentiment among option players