Caterpillar’s woes leave it trailing a broader market rally

Today’s tickers: CAT, GE, WYE, COV, CCI & XLF CAT – Caterpillar Inc. – A bellwether for the broader economy, Caterpillar brought more disappointing news to the table this morning, reporting a 32% slump in fourth quarter net income and lower than expected projections for 2009. CAT estimates earnings for 2009 at $2.50 per share on revenue of approximately $40billion which was way off Wall Street’s assessment of $4.35 per share on revenue of $45billion. The five-year surge in demand for CAT’s heavy construction equipment domestically as well as in emerging markets has come to a screeching halt, prompting the announcement of 20,000 job cuts among other cost-cutting measures. The implied reading of option volatility declined from 70 to 56% after earnings while the most popular destination for option investors was at the 30 line in February and March expirations where puts were bought. In the May contract more puts were sold than bought perhaps indicating that investors believe that shares should have recovered by that point in time. GE – General Electric – Despite a 3.7% share price rally to $12.50 today, possibly attributable to affirmation from S&P that GE won’t lose its AAA-credit crown on account of last Friday’s fourth-quarter earnings results, option investors can’t seem to get enough downside protection. The February 10 strike is heavily-trafficked in Monday morning activity where more than half of the 63,000-strong volume was initiated by interested buyers at a volume-weighted average price of 37 cents. The share price would need to decline to $9.63 before buyers break even on the deal at this stage. WYE – Wyeth – Pfizer confirmed last week’s deal broken by the WSJ, when it provided a sweetener to its quarterly earnings saying it would pay around $50 per share for Wyeth. The combined drug manufacturer would have 17 products generating in excess of $1 billion in annual revenues. Wyeth’s shares were slightly higher at $44.10 while once again its option activity was active with almost 30,000 lots in play within the first hour of trading. Since the deal involves a $22.5 billion consortium loan by Pfizer, there is possibly some risk that the deal isn’t struck until the signatures are dry on the paper and hence shares in Wyeth are not fully valuing the proposal. The February 45 strike was option traders target today as they bought around 8,000 lots at the prevailing 70 cent premium. The 47.5 and 50 strike where…