Many articles on this site have focused on the attributes of Caterpillar (NYSE: CAT), the world’s largest heavy equipment maker, for growth, value, and income investors.
There is much for those who seek to write covered put option writers to like about “The Big Cat.”
Writing covered put options allows for the owner of a stock to sell options to sell it at a set price in a set period of time. It is basically giving another the opportunity to short the stock without the higher cost and unlimited liability. Those who sell covered puts profit from the sale of the option, collecting the dividend, and any gains from the put option being exercised.
A major appeal of Caterpillar is that it is volatile.
Even though Caterpillar is a member of the Dow Jones Industrial Average (NYSE: DIA), it is a very volatile stock. That means there is a good chance the option will be exercised. If that happens, the seller can step in and buy the shares at the lower price. That could result in profits from many different events. It doubles down on profits from stock falling is a short position has been set, too.
Another is that the seller of the put gets to keep the dividend.
Caterpillar has a very healthy dividend. The owner of the stock keeps to pocket it even though a put option has been sold. Caterpillar stays as an income stock for the shareholder.
Another feature is that the option might never be exercised.
Dr. Joseph Louro, head of Investview (OTC: INVU), an investor education and financial technology firm, points out that the great majority of options ae never exercised. That is free money for the seller of the covered call option. As Caterpillar is up more than 35 percent for 2014, that is safe for selling put options. Along with the dividend, that makes writing covered put options on Caterpillar a low risk and lucrative strategy for investors.