Caterpillar predicts a tariff impact of $1.5 billion to $1.8 billion, resulting in a decline in share price.
by VT Markets
/
Aug 29, 2025
Caterpillar’s shares fell in after-hours trading. The company announced that it expects tariffs to have a net impact between $1.5 billion and $1.8 billion. This is an increase from its previous estimate of $1.3 billion to $1.5 billion.
For just the third quarter, Caterpillar estimates the impact will be between $500 million and $600 million. They believe their full-year adjusted operating profit margin will likely be at the lower end of their target range. Despite these challenges, the company has kept its full-year sales forecast the same.
Caterpillar is taking initial steps to reduce the effects of tariffs but recognizes that trade discussions are still changing.
Caterpillar now expects a larger impact from tariffs, in the $1.5 billion to $1.8 billion range. This has caused the stock to drop in after-hours trading, indicating more near-term challenges for the company.
With a projected $500 million to $600 million impact this quarter, buying put options could be a smart move to prepare for further declines. The latest industrial production data for July 2025 showed a surprising 0.2% decrease, which compounds the negative news. This makes near-term puts—especially those expiring before the next earnings report—a compelling strategy.
There are also worries about the overall industrial sector and renewed trade tensions. The tariff disputes from 2018-2019 pressured the entire sector, not just Caterpillar. The CBOE Volatility Index (VIX) has already risen 5% this week to 16.8, which could trigger a broader risk-off sentiment.
If you’re unsure about the next direction after the initial dip, you could consider capitalizing on the rise in implied volatility. Caterpillar’s comment that negotiations are “fluid” suggests we should expect more price swings driven by news. Straddles could be a good strategy to take advantage of potential large moves in either direction.
by VT Markets
Aug 29, 2025
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