Why Caterpillar’s Soaring Stock Is Perfect for an Option Collar Strategy
Caterpillar Inc. (CAT), a global leader in construction equipment, is trading at an elevated price, sparking interest in hedging strategies. The company's stock has surged since last spring and has tripled in the past five years, making it a classic setup for an option collar. Analysts suggest a collar strategy for CAT stock, involving a long put and a short call, both expiring on Jan. 16, 2026, with strikes at $550 and $680 respectively. This strategy costs about 3% of the current stock value and is more likely than selling the position entirely. Despite the stock's expensive valuation at 31x forward earnings and a debt ratio not indicative of undervaluation, the daily and weekly charts do not signal an immediate crash. However, a long-term (monthly) chart view confirms that CAT stock is super expensive technically. The worst-case scenario for this collar trade results in a 6.4% loss, while the potential gain is 16.4%. Caterpillar, a $250 billion stock and a key component of the construction industry, is a trusted name globally. Given its uncertain future performance and expensive stock price, an option collar strategy is being considered to hedge against potential market fluctuations.
