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Tony Zhang's Caterpillar Trade

Tony Zhang's Caterpillar Trade

On CNBC's "Options Action," Tony Zhang suggested a call options strategy in Caterpillar Inc. (NYSE: CAT). Due to the weak market, he has a neutral outlook for the stock in the short run and a bullish view in the long run, so he wants to use a call diagonal.

He wants to buy the December $155 call for $10.30 and sell the October $160 call for $3.15. The total cost of the structure is $7.15 or 4.7% of the underlying. To reduce his cost basis, which is currently higher than the difference between two strikes, Zhang is going to roll the October $160 call and sell a call in November and another one in December.


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