Shares of industrial equipment manufacturer Caterpillar (CAT) are down about 3 percent over the past year, but down 10 percent just since June. One trader is betting on a rebound in the coming months.
That’s based on the October $220 calls. With 80 days until expiration, 28,242 contracts traded compared to a prior open interest of 162, for a massive 174-fold rise in volume on the trade. The buyer of the calls paid $4.83 to get in.
Shares recently traded for just under $200, so it would take a 10 percent rally for the option to move in-the-money.
The stock doesn’t seem too expensive right now, with shares going for 15 times forward earnings. The respected global brand also saw revenue rise 14 percent in the past year. Other company metrics point to the best valuation in years right now.
Shares have been somewhat volatile, but rangebound in the past year. It’s likely that as recession fears fade or global growth trends perk up, so will shares.
Action to take: Caterpillar looks attractive for a post-recession move higher. Investors can start buying shares now, thanks to the company’s growing dividend yield with a starting payout of 2.4 percent.
For traders, the October options are reasonably priced for a move higher. Traders will likely want to take profits should shares near the prior June high close to $220.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.