NEW DIRECTIONAL CALL PLAYS

Caterpillar Inc. - CAT - close: 99.64 change: -1.70

Stop Loss: TBD
Target(s): 104.00, 109.00
Current Option Gain/Loss: Unopened
Time Frame: 3 to 4 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
CAT has been a big underperformer this week. The situation could reverse and CAT could be an outperformer if lawmakers come together on a deal this weekend. What I am suggesting tonight is a very aggressive, speculative, higher-risk trade. Normal traders will just want to sit back and wait for Monday before evaluating new positions.

Without getting into too many details on the political process this trade tonight is a bet that we'll have some sort of deal by Monday. If you do not think we'll see a deal then do not launch new bullish positions on Friday. My thinking is that we'll hear about a deal come Sunday night. That means stocks could gap open higher and rally on Monday. We'll use an aggressive entry point and buy calls on CAT on Friday at the closing bell. If we're right, then CAT should gap open higher on Monday morning. If we're wrong then the stock will likely gap open down. Therefore we want to keep our position size small to limit our risk! I'll add a stop loss this weekend once we know our entry point.

buy calls on Friday @ the closing bell.

- Suggested (SMALL) Positions -

(If CAT is poised to close under $100 then buy the AUG $100 call)
buy the AUG $100 call (CAT1120H100)

(If CAT appears to close over $100 then buy the AUG $105 call)
buy the AUG $105 call (CAT1120H105)

Annotated Chart:

Weekly Chart:

Entry on July 29 at $ xx.xx
Earnings Date 10/20/11 (unconfirmed)
Average Daily Volume = 8.7 million
Listed on July 28, 2011