Caterpillar (CAT) trades around $780. The market puts roughly a two-in-three chance that the stock finishes somewhere between about $525 and about $1,170 a year from now. That is not a forecast of direction. It is the size of the swing a holder is already carrying, and Caterpillar's own record says it is no exaggeration.
Measured from around $780, the floor of that range sits roughly a third below today's price and the ceiling close to half again above it. The extra room on the upside is arithmetic, not optimism. A stock cannot fall below zero and can rise without limit, so the upper end is always the longer one. There is also roughly a one-in-six chance of finishing above the band, and the same chance of finishing below it.
A third of the money in the position can go, and the band's low end is not the worst case. The same market pricing that drop is pricing a larger gain on the other side. The size of your position decides how much of that drop, or that gain, you actually feel.
None of that width is theoretical here. Caterpillar returned 83% over the past twelve months, against about 17% for the S&P 500, and it still trades about 26% below its 52-week high. Both of those belong to the same year. A stock that can do both is the kind an options market prices this wide.
Implied volatility of 39.9% is running level with the 40.0% the stock has actually delivered over the trailing year. The market is quoting the recent past forward rather than charging extra for fear. What could make the year ahead different sits inside the business.
#market #below #chance #around
Measured from around $780, the floor of that range sits roughly a third below today's price and the ceiling close to half again above it. The extra room on the upside is arithmetic, not optimism. A stock cannot fall below zero and can rise without limit, so the upper end is always the longer one. There is also roughly a one-in-six chance of finishing above the band, and the same chance of finishing below it.
A third of the money in the position can go, and the band's low end is not the worst case. The same market pricing that drop is pricing a larger gain on the other side. The size of your position decides how much of that drop, or that gain, you actually feel.
None of that width is theoretical here. Caterpillar returned 83% over the past twelve months, against about 17% for the S&P 500, and it still trades about 26% below its 52-week high. Both of those belong to the same year. A stock that can do both is the kind an options market prices this wide.
Implied volatility of 39.9% is running level with the 40.0% the stock has actually delivered over the trailing year. The market is quoting the recent past forward rather than charging extra for fear. What could make the year ahead different sits inside the business.
#market #below #chance #around
9 hours ago
