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Putting Time On Your Side

What to do when your idea goes from an interesting idea to “in your face” before you even put the trade on?

On Friday’s show we suggested selling the CAT August 30/25 put spread.

Using Friday’s prices and a CAT stock reference of $30.35, we were suggesting selling the August 30 puts at $4.50 and buying the August 25 puts for $2.50, net risking $3 to win $2.

If you put the trade on Friday, there is no reason to panic trade out of it at this point because August options have quite some time for the neutral to bullish thesis to play out.

Keep in mind, Stacey chose August to give us time, not to get out of the trade the next day.

If you did not put on the trade on Friday – first, good timing! – and second, you can put on a similar trade today with slightly different breakevens, but the same type of risk reward.

With Tuesday's prices and a CAT stock reference of $27.96, the August 26/21 put spread offers a similar risk/reward. Using our intraday snapshot, the August 26 puts are $3.60 bid and the August 21 puts are offered at $1.83, net risking $1.77to win $3.23.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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