Carter Worth And Mike Khouw's Caterpillar Trade

On CNBC's "Options Action", Carter Worth spoke about Caterpillar Inc. CAT.

He said the stock has underperformed the S&P 500 for the last seven to eight years. Worth is concerned about the future price action of the stock in case of a bear market since it underperformed the market in the bull phase. Caterpillar's chart also looks bad, he said. He noticed the triple top pattern and the stock has also broken its trend line on the downside. Worth believes Caterpillar could drop to $112.

Mike Khouw suggested an options strategy for Caterpillar. He wants to buy the July 120/110 put spread for $2.75. The trade breaks even at $117.25 or 4.60 percent below the current market price. It can maximally make $7.25 if the stock drops to $110 or lower on July expiration.