Wednesday, 1 April 2015

Options Trade - Caterpillar

When Caterpillar dipped below $80, it got my attention. But instead of buying the stock outright, I finally decided on selling a put. This put is somewhat unique for me because it's the first time I sold a put above the current share price. The trade:

Sold 1 CAT Put Nov 20 '15 $82.50 Put @ 8.28 ($11.20 commission + $0.02 SEC fee)

Days Held (sell date to expiry): 233

Net Premium: $816.78

Annualized Return = ($816.78 / ($8,250 - $816.78)) * 365/233 = 17.2%


The most likely outcomes of this trade are:

  1. Shares are trading above $82.50 at expiration. I will get to keep $816.78 in net premiums.
  1. CAT is trading below $82.50 at or before expiration and shares are assigned. I will receive 100 shares of CAT at a net cost of $74.33/share.

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