Trade Alert - (CAT) August 5, 2024 - STOP LOSS - SELL

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.

 

Trade Alert - (CAT) – STOP LOSS

SELL the Caterpillar (CAT) August 2024 $310-$320 in-the-money vertical Bull Call debit spread at $6.50 or best

 

Closing Trade

8-5-2024

expiration date: August 16, 2024

Portfolio weighting: 10%

Number of Contracts = 13 contracts

It's tough to beat a global stock market panic.

Markets worldwide are in freefall as “de-grossing” breaks out with a vengeance. When all the hedge funds in the world want to go into cash at once you don’t want to stand in the way. Don’t bother attempting any logic here about valuations. Out is out.

The stock market is now discounting a recession that isn’t going to happen. A reaction like this is what you would expect with a Nonfarm Payroll job LOSS of 500,000, which we actually got during the pandemic, not a GAIN of 114,000. But markets always overreact, as they are now run by similar algorithms and 25-year-olds who’ve never seen this before.

What is the worst-case scenario? We are already down 10% from the top, so take it to 15%-20%. After that, we will have fabulously low prices from which to launch the post-presidential election rally.

How will we recognize the bottom?

1) Watch the bond market like a hawk, which has seen one of the most explosive rallies of all time, taking ten-year US Treasury yields from 4.50% down to 3.65% in a mere month. When it tops, stocks will rally.

2) A single positive data point could turn this market. The next one of any substance is the Consumer Price Index out August 14 in seven trading days.

3) An inter meeting interest rate cut by the Federal Reserve. While rare, these can happen during economic emergencies. Is a stock market crash an “economic emergency”? Only if it spreads to the broader economy. Only Jay Powell knows for sure. One thing is certain. The pace and extent of interest rate cuts has vastly accelerated, greatly boosting the economy. Eventually, markets will figure this out.

While I didn’t handle this meltdown perfectly, I did pretty well. I went into it with four technology short positions in (NVDA) and (TESLA) and only one long in (AMZN) added days ago. All of my positions expire in nine trading days, thus greatly limiting the damage with very short expirations.

The important thing here is to live to fight another day.

I am therefore selling the Caterpillar (CAT) August 2024 $310-$320 in-the-money vertical Bull Call debit spread at $6.50 or best.

DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.

Simply enter your limit order, wait five minutes, and if you don’t get done, cancel your order and lower your offer by 10 cents with a second order.

If you are looking for a great play on falling interest rates, you can’t do any better than heavy equipment maker Caterpillar. I have been following this company for 50 years.

They have great exposure to the housing market which will benefit greatly from falling mortgage rates. They have a factory in China that benefits from construction there.

This was a bet that Caterpillar (CAT) would not fall below $320 by the August 16 option expiration day in 15 trading days. For more about (CAT), please click here for their website.

Here are the specific trades you need to close out this position:

Sell 13 August 2024 (CAT) $310 calls at………….…..............……$14.00

Buy to cover short 13 August 2024 (CAT) $320 calls at………....$7.50

Net Proceeds:……………………..…….………..………….............….....$6.50

Loss: $8.50 - $6.50 = -$2.00

(13 X 100 X -$2.00) = -$2,600

 

 

 

 

 

 

If you are uncertain about how to execute an options spread, please watch my training video by clicking here.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep-in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.