This cat might not have nine lives.
Caterpillar shares extended losses early Friday after the company reported disappointing earnings results earlier this week and slashed its full-year guidance, citing the collapse in commodities and overall weak global economy. The stock is trading at multi-year lows and some traders are betting on even more pain for the industrial giant.
On Thursday, when options volume ran more than four times its daily average, there was an abundance of bearish bets that the stock could fall another 3 percent in the next week. Specifically, there was notable opening activity in the July 31 weekly 75-strike puts being bought at an average price of 40 cents. Since buying a put allows a trader to sell a stock at a set price for a given time, these trades are profitable if the stock falls below $74.60 by next Friday. Shares of Caterpillar were trading at $76.66 in early Friday trading.
For Khouw, the bearish bets "make a lot of sense" as the prices of options have come down quite a bit post-earnings. "The options are quite inexpensive and they represent less than 1 percent of the stock price to make your bearish bet," he said. "Could this stock move 3 percent over the course of the next week? I think so."
Caterpillar shares have been under pressure for much of the past year. The stock has fallen more than 30 percent since its 52-week high hit last September.
Wall Street doesn't appear to be as skeptical as the options market. Of the 22 analysts that cover the stock, the average price target is $82.29 with a rating of hold, according to FactSet.