Caterpillar (CAT) 2/9/10 PriceWatch Alert Up To 27.93% Return

Posted: Tuesday, February 09, 2010 8:44 AM EDT
By: Market Intelligence Center Staff

Caterpillar (NYSE: CAT) closed yesterday at $50.78. So far the stock has hit a 52-week low of $21.71 and 52-week high of $64.42. Caterpillar stock has been showing support around 49.49 and resistance in the 52.79 range. Technical indicators for the stock are Bearish and S&P gives CAT a positive 4 STAR (out of 5) buy rating. CAT appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at a May '10 50 covered call for a net debit in the $46.38 area. That is also the break even stock price for this trade. This covered call has a 102 day duration, provides 8.66% downside protection and a 7.81% assigned return rate for a 27.93% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the CAT Jan '11 35 Call and selling the May '10 50 call for a $12.95 debit. The trade has a 102 day life and would provide 5.57% downside protection and a 15.83% assigned return rate for a 57.00% annualized return rate (for comparison purposes only). Caterpillar has a current annual dividend yield of 3.27%. [ATU-Seven Summits Research]