Get Paid 11% To Wait For CAT Stock To Go On Sale

Receive an upfront premium that you retain, which serves to lower your net cost basis if the stock is assigned, with the potential to buy the stock at a discount only if its price drops.

Caterpillar (CAT) has been on an absolute tear, trading right at the top of its 52-week range after a stunning run. The latest quarter saw the company post a record backlog and a big jump in sales, fueled by what looks like a once-in-a-generation demand boom. That kind of strength creates an interesting opportunity for an options trade that pays you to be patient, letting you define your own, much lower entry point on the stock.

11% annualized yield at a 30% margin of safety, by selling put options.

• Sell a put option on CAT expiring 6/17/2027, with a strike price of $740.
• Collect roughly $4,665 in premium per contract (each contract covers 100 shares).
• That works out to about 6.5% annualized on the $74,000 of cash you set aside to secure the trade.
• Park that cash in a money market or savings account earning roughly 4.0%, and your total yield climbs to about 10.5%.
• And if CAT falls below $740, you buy it at $740, an effective entry near $693.35 a share after the premium, about a 35% discount to today’s $1064.90.

Two Scenarios at Expiration

If CAT stays above $740 through 6/17/2027, the put expires worthless, and you simply keep the full $4,665 premium. That is about 6.3% on the $74,000 you set aside over 352 days, cash that might otherwise earn you 4.0% or so. You never buy the stock and keep the income, free to do it again.

If CAT closes below $740, you are assigned to buy 100 shares at $740. The $4,665 premium you already pocketed lowers your effective cost to about $693.35 a share, roughly a 35% discount to today’s price, though if the stock declines significantly below your breakeven of $693.35, you will incur substantial capital losses.

So what happens if CAT really does close below $740, and you are the one buying? Then everything rests on a single question.

How Comfortable Would You Be Holding CAT?

So, would you be comfortable owning this industrial bellwether at a steep discount to today’s price? That’s the only question that matters. On one hand, you’re looking at a business with a powerful growth story. The Power and Energy division is seeing incredible demand, largely to provide reliable power for the build-out of data centers. Management is so confident in this trend that it’s planning to nearly triple its large reciprocating engine capacity from 2024 levels. This isn’t just a forecast; it’s translating into hard numbers, with the company’s total backlog swelling to a record $63 billion, a 79% jump from the prior year.

But there’s a catch, and it’s a significant one: profitability. While the top line is booming, the picture on margins is more complicated. The company is navigating a major headwind from tariffs, which are expected to cost between $2.2 billion and $2.4 billion for the full year. This pressure is showing up in the numbers, particularly in the Resource Industries segment, where profit fell 39% in the first quarter and margins contracted sharply. Some analysts are asking why, with such a powerful sales outlook, the company isn’t guiding to higher long-term margins. For a deeper look into this, some are asking if Caterpillar’s margin problem is a sign of trouble.

Ultimately, this trade is a bet that you’re being well-compensated for the risk that the margin story weighs on the stock. You collect your income upfront, and you keep it whether the stock goes up, down, or sideways. If it does fall far enough to get put to you, you’ll own a pillar of the industrial economy at a price you decided on beforehand. The one area to watch is the performance of that Resource Industries segment. If its profitability stabilizes, a major drag on the story is gone. If it continues to struggle, it might just be the catalyst that delivers the stock to your discounted price.

Wondering whether another stock offers a better yield, or what this same trade would pay on a name you already like? You can screen the latest cash-secured put yields across the market for yourself. And if it is exposure to industrials as a whole you want rather than this one name, an industrials ETF like XLI gives you that, though it stays a single-sector bet rather than a quality-first mix across the whole market.

Pair The Premium With Real Diversification

Getting paid to wait for a lower price on a stock you like is one of the more sensible trades around. It is still, by design, a concentrated position, and concentration is how hard-won gains get undone when a single name turns. The income is the upside; single-stock risk is the cost.

The Trefis High Quality (HQ) Portfolio handles that second half: about 30 quality, cash-generative companies, chosen on the full weight of their fundamentals rather than one premium-rich setup, then sized and re-balanced with care. The payoff is a track record of outpacing a benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. Keep the income from trades like this, without pinning your future to any single one.