Walmart's New Health Food Push: Is It Too Hard to Swallow?
Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger
Caterpillar (NYSE: CAT - option chain) shares are rising today after company CEO Jim Owens told a group of financial analysts and institutional stockholders that he expects company earnings to reach $8 to $10 per share annually in the next five years as long as the global economy recovers. He also reaffirmed CAT's 2009 EPS forecast of $1.15 to $2.25. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CAT.CAT opened this morning at $45.45. So far today the stock has hit a low of $45.35 and is currently trading at its intra-day high $47.41 up $2.29 (5.1%). The chart for CAT looks bullish and S&P gives CAT a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.1% return in three and a half months as long as CAT is above $30 at November expiration. Caterpillar would have to fall by more than 36% before we would start to lose money. Learn more about this type of trade here.
CAT has not been below $30 since April and has shown support around $41 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent controls bullish hedged positions in CAT.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
