DailyPlay – Opening Trade (CAT) – July 27, 2023

CAT Bullish Opening Trade Signal

View CAT Trade

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish

Details: Buy to Open 3 Contracts Sept 15th $260/$280 Call Vertical Spreads @ $7.07 Debit per contract.

Total Risk: This trade has a max risk of $2,121 (3 Contracts x $707) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $707 to select the # shares for your portfolio.

Trend Continuation Signal: This is a bullish trade on a stock that has been bullish and is expected to break higher.

1M/6M Trends: Bullish/Bullish

Technical Score: 6/10

OptionsPlay Score: 102

Stop Loss: @ $3.54 Credit (50% loss).

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

Yesterday’s FOMC meeting was a non-event, despite Chairman Powell leaving the door open to further rate hikes. The market has now fully committed to pricing in no more rate hikes for the rest of the year and expect rates to be a full 125bps lower by the end of next year. This should be interpreted as positive, however markets are showing some early signs of exhaustion with negative divergence with momentum on both the S&P 500 and Nasdaq 100 index. Despite this, we see a healthy amount of rotation within the sectors and the rally broadening out. One sector that is showing strength on both an absolute and relative basis is industrials as it prints a new all time high yesterday. And CAT is a potential candidate for a breakout with earnings next week within the industrials sector. Trading at only 14x forward earnings, yet expecting 26% EPS growth this year, it’s trading at a valuation that could support a breakout on strong earnings guidance. Currently trading at just below the $265 resistance level we are taking this opportunity to buy an OTM Call Vertical to play for a breakout on earnings. Buy to Open Sept $260/280 Call Vertical @ $7.07 Debit. With a hypothetical portfolio of $100,000 we recommend risking 2% of it on this trade, which is 3 Contracts for a total risk of $2,121. Set a stop loss on the spread when losses exceed 50% of the premium paid, at about $3.50 Credit.

CAT – Daily