Trade Alert: Time to Buy Caterpillar

This morning, Caterpillar (NYSE: CAT), a global machinery maker, crushed earnings and sent the stock soaring.

The company reported earnings that were more than double what Wall Street expected, coming in at $1.28 per share, excluding certain items, compared to estimates of $0.62. The stock popped over 5% this morning on the beat.

Based on our historical research, we know this is an ideal time to grab call options on the stock.

This drift has occurred five times in our research. It saw a modest gain — basically at breakeven — one of those times. In the other four instances, the stock climbed 8%, 13%, 14% and 35%. So there is plenty of upside to this trade, and since we use options, our returns could be magnified significantly.

To capitalize on this trade, we are going to grab the July 21, 2017 $105 call options.

Here’s your action to take:

Action to Take
Buy Action to Take
Stock: Caterpillar Inc. (CAT)
Option Type: Call Option
Expiration: Jul-21-2017
Strike Price: $105
Option Symbol: CAT170721C00105000
Action: Buy to Open
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: $3.50
Trade Deadline: If your order is not filled by my next update, I will update you on the trade.
Note: Do not place a market order. Set the limit order at $3.50.
Once this order is filled, place the following order:
Sell Action to Take
Stock: Caterpillar Inc. (CAT)
Option Type: Call Option
Expiration: Jul-21-2017
Strike Price: $105
Option Symbol: CAT170721C00105000
Action: Sell to Close Half
Order Type: Limit Order
Duration: GTC (Good ‘Til Canceled)
Limit Price: Whatever nets you a 50% gain.
Trade Deadline: Keep this order open until it is filled or canceled.
Note: This second order will allow us to collect a 50% gain on half of our position in the event that a quick move happens before I can get a trade alert out to you.

The rest of our portfolio is doing well, with our call options on Lam Research (Nasdaq: LRCX) continuing to climb — now up over 80%. The overall bullish moves in the market have helped our other two call options on Garmin (Nasdaq: GRMN) and Monster Beverage (Nasdaq: MNST) as well. Both are still underwater at the moment, and we are set to exit these positions very soon, so keep an eye on your inbox for the alert to exit those.

We will continue to have a busy week, so you could also receive our next buy alert any day.

That’s all for now, but I’d like to give a quick thank-you to Tom, Dave, Bill and everyone who sent in their feedback on the first half of the Lam Research trade. I appreciate the time and thought it takes to write those notes. Every email helps us continue to improve this service and fit it to your needs, so thank you.

You can always reach me at earningsdrift@banyanhill.com.

Regards,

Chad Shoop, CMT
Editor, Earnings Drift Alert