The Wall Street Journal-20080129-Upgrade on Caterpillar Sets Off Heavy Trading

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Upgrade on Caterpillar Sets Off Heavy Trading

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An analyst upgrade of Caterpillar Inc. kicked off heavy options trading in the heavy-equipment manufacturer.

Caterpillar, often considered a barometer of economic conditions, last week said it was leaning more heavily on growth overseas as its sales outlook soured for North America. Bear Stearns issued an upgrade on Caterpillar stock yesterday, and shares rose $2.28, or 3.5%, to $68.21 each.

Still, options investors appeared more pessimistic, as trading in Caterpillar puts soared to three times the average daily volume this month. Nearly three puts changed hands for each call contract, typically a bearish sign.

Traders homed in on contracts that give holders the right to sell Caterpillar shares at $65 by late March. The volume of these March 65 puts was 10 times the open interest. The price of the contract fell 18% to $2.30.

Separately, Delta Petroleum Corp. options were active, as shares added $1.71, or 9%, to $20.80 each. About six call contracts traded for each put.

Investors scooped up contracts that give holders the right to buy Delta Petroleum shares at $20 by late February. More than 11,000 of these February 20 calls traded, two-and-a-half times the open interest, and prices rose 64% to $2.70.

Kirk Kerkorian's investment vehicle has agreed to buy a 35% stake of the oil-and-gas exploration company for $19 a share, or $684 million.

Ahead of earnings reports this week, there was a pickup in options activity on Yahoo Inc. and Amazon.com Inc. Yahoo was to report fourth- quarter earnings today, with investors expecting business plans and a potential restructuring announcement from the Internet giant. Amazon is expected to post fourth-quarter earnings tomorrow.

Trading also pointed to rising expectations of stock price swings in Clear Channel Communications Inc., where worries have re-emerged about the radio chain's $19.5 billion sale to private-equity firms. Clear Channel fell $2.38, or 7%, to $31.42 a share.