Wednesday, November 12, 2008

(CAT) gets Clawed

(CAT) Caterpillar Inc. – Most think this stock is recession-proof...? The Chinese government’s fiscal stimulus helped inspire a rally in commodity and construction related companies. Heavy equipment manufacturer, Caterpillar saw its shares rally to $40.88 before having to make do with a 1% gain to $38.83. Our market scanners honed in on a large and opportunistic bearish put spread in the December contract where a 15,000 lot transaction went through at a premium of a net 95 cents to establish limited downside protection. The trade involved a long position in the 35 puts and a short position at the 30 strike aimed at providing as much as 4.05 per contract should shares in Caterpillar reach or fall beneath the $30.00 price level by expiration. The recent 52-week low at $31.95 was established on October 24. It would appear that this investor is taking advantage of a market rally to reach for downside protection and has the view that there is only so much that governments can do to stop the rot.