Carter Worth And Mike Khouw's Caterpillar Trade

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On CNBC's Options Action, Carter Worth shared his technical analysis of Caterpillar Inc. CAT. He presented a chart that shows that historically there was a strong correlation between the stock and crude oil. Worth added that Caterpillar should trade lower to its long-term trend line.

Mike Khouw suggested a put spread as the best way to make a bearish bet and target a 15 percent decline in the stock. He wants to buy the March 60 put for $2.60 and sell the March 55 put for $1.25, paying $1.35 for the put spread. The breakeven for the trade is at $58.65 or 7.33 percent lower from the current stock price. If Caterpillar drops 13 percent to $55, Khouw can make $3.65.

Dan Nathan commented that the company had $65 billion in sales three years ago and next year they should have $43 billion in sales. That is a decline of 34 percent. Nathan added that in 2010, the company had $43 billion in sales and it traded at $50. He would be more aggressive with the trade and he would choose the March 60/50 put spread.

Posted In: CNBCMediaDan NathanOptions Action
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