Two names traders are watching as a massive earnings week kicks off

Two names traders are watching as a massive earnings week kicks off

Earnings season is in full swing with one-third of the S&P 500 and Dow Jones Industrial Average set to report this week. Microsoft, Boeing and McDonald's are just a few of the 166 companies on deck. 

In an interview with CNBC's "Trading Nation," Danielle Shay, director of options at Simpler Trading, flagged Caterpillar, which reports on Thursday. Pointing to prior data, she said the stock has high implied volatility, which benefits options traders.

"Historically, it moves 1[%] to 3% on earnings and it actually usually pulls back a little bit. But, I'm noticing in the options market, because of the implied volatility, traders could actually come right in and sell premium right at the money for a really good risk reward," she said.

Additionally, the construction and energy industries are heating up, boosted by prospects around President Joe Biden's recently unveiled $2 trillion infrastructure plan and a rebound in oil prices, Shay said.

"Overall, I think that Caterpillar is really strong," she said, adding that the stock will likely see a small pullback on earnings, which would "make for a great place to add some additional shares if you don't want to trade options."

Craig Johnson, senior technical research analyst at Piper Sandler, has Facebook