Weekend Trader Alert

Weekend Trader Alert

December 25, 2022

Open Positions Update

  • Close the Skyworks (SWKS) February 17, 2023, 92.50-strike call on Tuesday, December 27. Close the position at a limit price within the range of the current market price when you place the order.
The following is this week's recommendation:

Caterpillar (CAT)

Place a limit order to buy the Caterpillar (CAT) February 17, 2023 230-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, December 23, this option was offered at $18.40. CAT closed at $239.87 on Friday, December 23.

Do not attempt to enter this position after Tuesday's close.

Please use the following guidelines to manage the position:
  • Exit the position if the option is at a 100% gain from your entry price.
  • If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, January 23, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Shares of Caterpillar (CAT) experienced a pennant breakout on the charts, as well as a successful retest and hold during the market volatility, both of which point toward relative strength. The equity is also holding above its 20-day moving average following a post-earnings consolidation, with the +10% year-to-date level acting as support.
There's plenty of room for upgrades, too, should any optimistic economic news roll in, with analysts begin pricing in a recession in early 2023. More specifically, 18 of 30 covering brokerages rate CAT a "hold" or worse.

An unwinding of pessimism in the options pits could create additional tailwinds.  Data from the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the equity's 50-day put/call volume ratio of 2.09 ranks higher than all other annual readings. Multiple bull runs have started when this ratio was above 2.

Caterpillar stock's Schaeffer's Volatility Index (SVI) of 29% sits in the relatively low 32nd percentile of its 12-month range, indicating implying options are reasonably priced at the moment. Our recommended February 230 call has a leverage ratio of 8.5, and will double on an 11.3% rise in the underlying shares.
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