What do I think? The earnings come out before the opening tomorrrow. I don't know. I know the markets are in an uptrend. Just look at stocks like Amazon and Meta which both have recently spiked upwards on good news. Caterpillar builds the equipment that will be necessary to rebuild the world. It should do o.k. on the release of it's it's earnings report. The open interest numbers in the Calls and Puts going into the release of this news are very low. As pointed out in my previous blog, traders cleared their books of all their open interest contracts on both Caterpillar Calls and Caterpillar Puts. Why did they do this? Well trying to outguess what might happen with earning reports can be an expensive game if you end up on the wrong side of things. Guess wrong you lose everything. There were easier times of going along for a ride playing this stock like during last Friday when the stock upticked all day. So let me show you how I think the pros played it. Well they actually forgot to play it. They all bailed on Caterpillar Calls late last Friday afternoon after riding it up all day. Here is what happened. Let's start with a chart of how Caterpillar was trading at 10:02 a.m. after the release of it's earning report and then backtract to how the Puts where trading in the first minutes of trading this morning after the release of their quarterly earnings report.
the stock jumped over $15.00 on the opening. Now look at the 335 Puts, almost two minutes into the market. They opened at $6.13 and the stock was up $13.50. Prior to the market's opening they were "in-the-money" options which suddenly became worth at lot less with Caterpillar's super strong opening.
Now look at this. A volume of three trades with one trade "in-and-out". A few late to the party Call players did jump in, hoping the stock would have a bit more upward kick. The volume of option trading was next to nil as traders including the pros were to nervous to try and catch this action. I have never before witnessed a lack of action like this! Tens of thousands of eyes were watching this situation and very few traders,including computer generated trading attempted or understood how to play it. Just nuts. Logic states that Caterpiller in situations like this can't keep going up forever. .
Now let's look again at the 335 Puts, this time at 9:56 a.m. That's twenty-five minutes after we checked the first trades of the day. As we can see,one trade was initiated most likely by one trader. It consisted of a ticket of ten Put contracts to the downside,"in-and-out" at a profit.
What was once $6:13 has jumped to $11:45. That was a twenty five minute trade. Now let's fast forward all of this to the end of the day action and look once agian at the 335Puts..
Look once again at the lack of trading volume. I have never witnessed such misguided trading strategies by Wall Street in my life before. What happened today will be hard to forget. The sharks missed what could be called one of the best opportunities of the month to make a lot of money in an easy trade. It's not often I say this.
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