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Caterpillar Put Spread Preps For Further Downside Next Week

 

Today’s tickers: CAT, HAS & INTC

CAT - Caterpillar, Inc. – Shares in the world’s largest manufacturer of construction and mining equipment are getting some relief today, trading up 1.5% at $80.84 this morning as U.S. stocks snap a six-day losing streak. Caterpillar’s shares, hit hard in recent months on concerns of a global slowdown, are down 30% off the February 24th 52-week high of $116.94. Trading traffic in options with one week remaining to expiration suggests, however, that the rally in CAT’s shares may be short lived and the shares have further to fall in the near term. It looks like one trader purchased a 1,500-lot July $72.5/$77.5 bear put spread for a net premium of $0.71 per contract. The spread positions the strategist to profit in the event shares in Caterpillar slide 5% to breach the effective breakeven price of $76.79, with maximum possible profits of $4.29 per contract available given a 10% pullback in the stock by expiration. Shares in CAT last traded below $72.50 back in October 2011. The company is scheduled to report second-quarter earnings ahead of the open on July 25th.

HAS - Hasbro, Inc. – Put options are in play on game maker Hasbro this morning ahead of the company’s July 23rd second-quarter earnings report. U.S. stocks are broadly moving higher today, enjoying their biggest gains of the month thus far, but Hasbro failed to join in the rally with its shares trading 1.1% lower on the day at $32.52 as of 11:50 a.m. in New York. Traders positioning for further downside in the stock purchased 1,500 puts at the Aug. $32.5 strike for a premium of $1.33 apiece. Put buyers stand prepared to profit should the price of the underlying decline another 4.2% to breach the average breakeven point at $31.17 by August expiration. Bearish options are also in play at the Aug. $30 strike, with around 1,000 puts purchased at an average premium of $0.45 each. Traders long the $30 puts make money at expiration next month as long as shares in Hasbro slide 9.1% to settle below $29.55, a new 52-week low for the stock.

INTC - Intel Corp. – Shares in chip giant Intel Corp. are up 1.75% at $25.17 today ahead of the company’s second-quarter earnings report on Tuesday. The stock has managed to stay positive, currently up 2.2% year-to-date; however, a sizable options combination play initiated in the October expiry this morning suggests the shares may turn negative in the second half of 2012. It looks like one or more traders purchased a total of 9,000 July $19/$24 put spreads for an average net premium of $0.785 per contract that is profitable – or provides downside protection – in the event Intel’s shares decline 7.8% from the current price to trade below $23.215. Maximum potential profits of $4.215 per contract are available on the position should the stock drop 25% to a two-year low of $19.00 by October expiration. The put spreads established this morning may be adding to- or adjusting the size of a hefty 40,200-lot put spread that appears to have been purchased at the same strikes on Thursday.

 

Caitlin Duffy

Equity Options Analyst


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