Caterpillar (CAT) is normally highly correlated to the price of oil, but over the past month that correlation has broken down.
Since March 17th, Oil is virtually unchanged while CAT has rallied 10%. The last time CAT was this rich compared to oil led to a significant sell off in CAT shares.
Earnings are due April 22, setting up a very nice put diagonal spread to position bearishly and take advantage of selling expensive options.
You can see me talk about this trade on Bloomberg TV “Options Insight”
Buy to open CAT May 75 puts (expire 5/20/2016)
Sell to open CAT April 73 puts (expire 4/22/2016)
1.25 net debit