Call Spread on CAT on 8/13/2012

This dow component may crawl, but CAT isn't fuzzy about earthmoving machinery and agricultural equipment. Considered #1 in the world, Caterpillar (Cat) makes construction and mining machinery; diesel and natural gas engines; underground mining equipment; industrial gas turbines; and electrical power generation systems. It operates plants worldwide and sells equipment through some 3,500 offices in more than 180 countries. It also provides rental services through 1,300-plus outlets and offers financing and insurance for dealers and customers. Caterpillar Power Ventures invests in power projects that use Caterpillar power generation equipment.

Stockwinners is bullish on this name for the following reasons:

1. They beat the estimates on their Q2 earnings on July 25.
2. Shares have formed a bullish inverse head & shoulder formation.
3. The trade structure requires less than 1.5%  price movement to the upside by September expiration  to be profitable.
4. CAT last traded at $89.15

TRADE: BUY 1 September $87.50/$90 CALL SPREAD for less than  $1.35    

• Buy 1 September $87.50 CALL for  $3.54
• SELL 1 September $90 CALL for       $2.21

Breakeven & profit/loss Analysis:

• Breakeven   $88.94 
• Profit   $2.50 if CAT trades at $90 or higher by Sept 21
• Loss   $1.40 if CAT falls below $87.50 by Sept 21

The payoff is presented below:

Trade Buy 1 January $50.00 Call at $3.54 Sell 1 January $50.00 Call at $2.21 For a net debit of $1.33 Profit/Loss Analysis Maximum profit is ($133.00) at strike of $50.00 Maximum loss is ($133.00) at strike of $50.00 Closing Summary Sold 1 January $50.00 Call at $5.20 Bought 1 January $50.00 Call at $3.10

Position closed on 8/21/2012 at price of $2.10 with a 57.89% gain in 7 days.

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