How To Play Caterpillar After Big Selloff

On CNBC's "Options Action," Tony Zhang said that Caterpillar Inc’s CAT stock has been “largely rangebound” between $190 and $230. “A couple of days ago, we bounded off of the $230 upper band and I think that we’re headed back towards the lower band,” he added.

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Looking at Caterpillar’s chart relative to its industrials sector, it is “currently forming this double top, after what has been a very strong relative performance since the November low,” Zhang mentioned. He added that this was a “good time to bet on what could be some underperformance.”

Caterpillar is trading at 17 times its next year’s earning, which is a “pretty rich premium to its relative history,” Zhang further stated.

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CAT Price Action: Shares of Caterpillar lost 3.80% to settle at $215.18 on Friday.