ITG Put Option Trade Alert
- Stock: Caterpillar Inc. (CAT)
- Current Price: $133.67
- Trade: Buy July Week 3 (expires July 19, 2019) $130 Put.
- Trade Type: Market Current Ask: $5.20
With trade tensions between the U.S. and China back at the forefront, and the Trump administration threatening to hold firm on increasing tariffs against China from 10% to 25% on Friday, you can expect the market to continue to be volatile. That puts industrial and tech stocks on the bleeding edge of risk right now. As of yesterday’s close CAT closed below its 200-day moving average and looks poised to reverse its intermediate upward trend dating back to late October 2018. The stock has room in the very near term to drop to around $130, with $127 the next lower target from that point.
The stock’s most likely resistance is around $135. The total distance from CAT’s current price is $1.33 per share. Set a stop loss at a break above $135.
Option Delta is -.405 (keep in mind put options use a negative number for Delta, but the math is identical to what you work with for a call option). Estimated stock move to $130 from current price is $3.67, so the estimated positive option price move is $1.48. Return: 28.5%. If you prefer to set a deeper target price, use $127. That offers a stock move of $6.67, and a positive option price move of $2.70. Return: 51.9%.
Estimated negative option price move is $.53. Loss: -10.35%