Bulls quadruple money in $CAT

Caterpillar has rebounded sharply this month, yielding huge gains on upside option positions.

On Aug. 20, Investitute’s market scanners identified the purchase of 2,985 October $145 calls for $3.51 as part of a bullish call spread with shares at $140.30. Volume was above the strike’s open interest of 2,493 contracts, showing that this was a new position. Investitute co-founder Pete Najarian chose Caterpillar for his final trade on CNBC’s “Halftime Report” today.

The calls traded up to $14.68 this afternoon, more than 4 times their purchase price. The stock rose 13.54% in the same time period, underscoring how options can far outperform their underlying shares.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

CAT was up 2.2% to $158.22 today. The construction-equipment giant, which has rallied as the Dow Jones Industrial Average reached lifetime highs, is scheduled to report earnings on Oct. 23 after the market closes.