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By Jud Pyle, CFA, chief investment strategist for the Options News Network

Shares of heavy-equipment maker



are currently trading around $31.20, up about 2% in today's trading. This rally comes after CAT announced earnings this morning before the market opened.

CAT announced per-share results of 39 cents, easily trumping analysts' consensus expectations of four cents per share. Clearly, that headline number seems very bullish for the shares. But comments from CAT that earnings for the rest of the year would be closer to $1.25 than the $1.77 analysts expect has dampened investor enthusiasm today.

We also saw some put activity hit the tape, which could suggest investors are seeking some protection in case of a potential pullback in CAT shares.

Looking at the CAT August 20 puts -- out-of-the-money by more than 35% -- we see that more than 40,000 have traded today, after an earnings release! The puts are currently trading for around $1, with the stock near $31.20. Current open interest in the puts prior to today's trading action was just 2,184, according to the Sidewinder report at


So it's apparent that today's volume will translate into new open interest come tomorrow. The August 17.5 puts are also seeing large volume, with more than 20,000 contracts hitting the tape at a price around 65 cents. Open interest at that strike, however, is much higher, at 10,935.

What is interesting about this activity is that the bulk of the put volume has been dominated by


, which has served to push up the implied volatility of the puts. In other words, the bears are out in full force even though earnings have already hit the wires.

Last night, the 20-strike puts closed at 94 cents, with the stock at $30.48. That computed to an implied volatility of 73. Now, with the options at $1 and the stock at $31.20, that is an implied volatility of 77.

Intuitively as well, you can tell that implied volatility is higher because the put price has increased despite the stock rising more than 70 cents! The same can be said of the 17.5-strike puts. They have risen from 58 cents to 65 cents despite the stock being higher.

Shares of CAT are up more than 40% from their closing low of $22.17 back on March 2. A run like that could be the reason why investors are purchasing some puts for downside protection in case the stock gives back some of its gains from the last six weeks of positive momentum.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."