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00:00OPTIONS STRATEGIST AT DELTA DERIVATIVE OUT IN CHICAGO. TIM, WE HAVE BEEN SEEING THINGS DRIFTING. THINGS HAVE GONE DOWN HERE IN THE WAKE OF THAT, WHICH IS NOT SURPRISING. THERE HAS A LOT OF TALK ABOUT PENDING RETURN FROM VOLATILITY. DO YOU THINK THAT WILL HAPPEN? >> CERTAINLY, TODAY'S PRICE ACTION IS EMBLEMATIC OF WHAT WE SAW A RECENTLY BACK AND FORTH, NO COMMITMENT TO TAKE IT TO ALL-TIME HIGHS, BUT NO COMMITMENT TO TAKING THE DOWNSIDE. I THINK WE WILL GET BIGGER EARNINGS OUT OF THE BIG TECH OR MAYBE THE FINANCIAL NAMES TO MAYBE GET THAT LIFTING UP AGAIN. JULIE: THE BACKDROPS YOU ARE LOOKING AT IS VALUATIONS GOING INTO EARNINGS. I THINK YOU ARE LOOKING AT SOMETHING OR YOU LOOK AT VIX VERSUS VALUATIONS. DESCRIBE TO ME YOUR ANALYTICS THAT YOU'RE LOOKING AT THERE. >> ABSOLUTELY. TRAILING 12 MONTHS, ACTUAL EARNINGS, HOLDING AT THE HIGHEST VALUATION LONG TIME, FOUR STRAIGHT QUARTERS OF EARNINGS DECLINE AND YET THE MARKET IS OFF OF AN ALL-TIME HIGH. THE MULTIPLE HAS EXPANDED AND YET THE VIX, TO ENSURE THAT MULTIPLE, HAS GOT ABOUT THE CHEAPEST LEVEL SO THAT RATIO IS THE RICHEST WE HAVE SEEN SINCE 2007. THAT DID NOT BOLD WELL OVER THE NEXT FEW QUARTERS AFTER THAT. CAROL: -- JULIE: I WANT TO TURN TO YOUR TRADE FOR THE DAY ON CATERPILLAR. THE CORRELATION BETWEEN CATERPILLAR AND OIL. I MADE A CHART OF IT. YOU CAN MAKE THIS KIND OF CORRELATION CHART. I WENT AND LOOKED AT THE HORIZON AND LOOKED AT THE CORRELATION BETWEEN IQUITOS. IT HAS REALLY COME BACK. IT HAD A DEATH LAST YEAR. THE CORRELATION IS NOT QUITE 121 BUT HE GETS CLOSE DIRECTIONALLY, A LOT OF DAYS. I GUESS WHAT IS YOUR OUTLOOK FOR OIL AND WHAT IS YOUR OUTLOOK FOR CATERPILLAR? >> ABSOLUTELY. GOING BACK OVER THE PAST YEAR , UP UNTIL ST. PATRICK'S DAY, ALMOST A ONE-TO-ONE CORRELATION. 93% CORRELATED. WE HAVE SEEN OIL FLATLINE AND CATERPILLAR SHOOT UP 10% FROM THAT DAY. THEY CORRELATION BREAKDOWN, EARNINGS COMING OUT OF THE END OF NEXT WEEK. I LOOK FOR A CATERPILLAR TO COME BACK FOR OIL AND I AM NOT SUPER BOWL BULLISH ON OIL GIVEN THE MOVE. I DO A TRADE ON BUYING THE REGULAR MAY SELLING NEXT WEEK, APRIL 73 PUTS A 55 VOLATILITY.

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Options Insight: How to Play Caterpillar

Delta Derivatives' Tim Biggam discusses the recent performance of stocks and his options play for Caterpillar. He speaks with Bloomberg's Julie Hyman on "Bloomberg Markets." (Source: Bloomberg)

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