Earnings season can be particularly tough on traders, as many look to avoid the actual announcement by not trading until afterward. Since earnings season is starting to wind down, however, there might be more potential opportunities now. This trade idea on Boeing (BA) stock looks to take advantage of positive earnings.
Boeing Stock (BA – $133.09): Put Credit Spread
The trade: Sell the BA Nov 29 128/130 Put Credit Spread (selling the Nov 29 130 put and buying the Nov 29 128 put) for 40 cents or better.
The strategy: The maximum potential profit for this trade is 40 cents if Boeing stock is trading above $130 at the Nov. 29 expiration. The maximum loss is $1.60 ($2 – $0.40) if BA is trading below $128 at expiration. Breakeven is $129.60 based on a credit of 40 cents.
The rationale: Boeing earnings were announced late last month, and considering the reaction of BA stock, it looks like the results were interpreted in a positive manner. For the year, Boeing revenues have increased about 6% and operating cash flow has more than doubled compared to last year. Earnings per share for the first nine months of the year have also risen, from $3.84 to $4.36. As of the end of September, BA had almost $16 billion in cash and short-term investments that translate into Boeing stock trading at about six times its cash position.
All of these numbers add up to making BA stock looking awfully attractive to investors.
Click to EnlargeBoeing stock gapped up after its earnings and traded around $130 for several sessions, forming a bullish base until November, when the stock proceeded to trade higher. BA currently is trading at all-time highs and might continue to try and move higher.
The only apprehension Boeing stock might face is if the market does attempt to pullback after its bullish run. The stock has been in a pretty solid uptrend for close to a year and should find the strength to avoid a huge drawdown.
Boeing might not continue to rise, but it should avoid crashing and burning.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.