CAT closed April 25 at $841.20, one week after I initiated a covered call position with the stock at $824.20. The position returned 3.1% for the week — modest on paper, meaningful when you consider the context.
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Caterpillar entered the week having already gained 32% year-to-date, a run driven by genuine earnings power but also by multiple expansion in the industrial complex. At $824, the stock was not cheap by any traditional measure. Infrastructure spending narratives and construction equipment demand remain solid, but I was uncomfortable adding outright long exposure at a 30-handle premium to January levels.
The covered call structure resolved that tension. I bought 100 shares at $824.20 and simultaneously sold the April 25 $840 call at $9.50 premium. My effective cost basis dropped to $814.70. The trade capped my upside at $840 — a deliberate choice. I was not trying to time the top on CAT. I was trying to get paid while holding a position I believed in, without overpaying for hope.
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By Wednesday April 23, CAT had printed a new all-time high at $845.27. It was a clean breakout, driven by a combination of infrastructure optimism and short covering. My $840 call was deep in the money. My shares were going to get called.
A few things went through my head at that point. First, regret — and I want to be transparent about that. Missing the final $5 from $840 to $845 on 100 shares is $500, which is real. Second, discipline. I entered this trade knowing exactly where it would resolve. The covered call was not an accident or an oversight. Letting the call expire in the money was the plan.
By April 25 expiry, shares were called at $840. The math: $840 minus $824.20 entry plus the $9.50 premium received equals $25.30 per share, or 3.07% on invested capital in five trading days.
What I'd Do Differently
Essentially nothing. The covered call accomplished what it was supposed to — generated income on a stock I wasn't ready to hold at full exposure through a volatile week, produced a defined outcome, and avoided me sitting in a position I was nervous about without a plan.
If CAT pulls back into the $800–810 zone, I'd consider re-entering the long. The underlying business is sound. The multiple is the risk, not the fundamentals.