2 months ago, I posted about my Caterpillar covered call. You can read the post here.
This was a little different than the process I typically use for covered calls. The situation was that Caterpillar had had a huge run-up. I was considering selling my shares, taking a profit and then waiting for a pull-back to buy more.
Instead, I decided to sell a covered call. I got a nice premium and I was assured either a substantial capital gain or, if the share price stayed low, I’d keep my shares and pocket the premium.
Either way I win.
I Love Caterpillar
Maybe a little over-kill, but I’m optimistic about infrastructure spending in the US. Developing countries are developing and I’ve seen Caterpillar equipment in many of the countries I’ve visited. So, yup, I like the company’s outlook.
I hope I hold onto my shares, but if not, I’m confident that it will pull back sometime in the next few years and I can buy shares again.
Oh yeah, and I still have 8.144 shares from dividend reinvestment that I’ll keep. 8.144 shares at today’s closing price of $794.65 is over $6,000 so I’m still a shareholder.
What a Difference…
Caterpillar’s stock price spent just about all of the time between my February option sale and today, well below the 770 strike price.
And my rationale going in was not only the stellar run Caterpillar had had, but the fact that we have wars going in Iran, the Ukraine and other places, inflation remains strong and at some point the market needs to take a pause – doesn’t it?
Apparently not.
Today, good news. the Straits of Hormuz are open. Which, by the way, they were open before we started the war, but anyway…the market is up big on that little tidbit of news.
If the expiration date had been any other day, I’d have kept my shares. And a nice premium to boot.
Wrap Up
So I’m sure all of you who read the first post in February have been waiting patiently to see what happened.
Well, now you know.
The point here is that as much as we think we can predict what will likely happen in the short term, we have no idea.
And we may have a sound basis in technical details but then the President sends a tweet at 4am and all bets are off.
Sometimes stocks get ahead of themselves but then keep going up, and up, and up.
Sometimes the stock prices of great businesses can get stuck for quarter after quarter despite solid results.
One of the things that interests me most about investing is that I’m constantly being surprised – ooh, I didn’t expect that.
What did I learn? Don’t bet against great businesses, especially in a market that favors their industry.
In this case I made a solid profit, I continue to hold a few shares of Caterpillar and it’s on my watch list for when it falls below $600.
If it does, I’ll buy more. If it doesn’t, I’ll celebrate the appreciation of the 8.144 shares I hold today along with all the future dividends that I’ll reinvest in more shares.