There seems to be a heightened sense of uneasiness in the market recently. Unemployment was just released, and market participants already seem to be thinking about the pending debt ceiling crisis that waits in the wings. Will the Santa Claus rally take hold, or will it fizzle out this year? Well, don’t worry about it — this trade on Boeing (BA) deals with a company that’s not fizzling.
Boeing Stock (BA — $132.73): Put Credit Spread
The trade: Sell the Dec 125/130 Put Credit Spread (selling the Dec 130 put and buying the Dec 125 put) for 85 cents or better.
The strategy: The maximum potential profit for this trade is 85 cents if BA is trading above $130 at December expiration. The maximum loss is $4.15 ($5 – $0.85) if Boeing stock is trading below $125 at December expiration. Breakeven is $129.15 at expiration based on a credit of 85 cents.
The rationale: Boeing reported third-quarter earnings in late October and said that revenue increased to just more than $22 billion, which is an 11% increase year-over-year. A large part of the growth was due to deliveries of its commercial airplanes. The company just released its latest report on airplane orders through early December, and Boeing said it has 17 new orders for its 737 airliner and had no cancellations at all over the past week. The company has just more than 1,000 net orders booked to date.
BA currently is being courted by more than a dozen states to move production of its new 777X airliner out of Washington and into their incentive-laden state. The company has been trying to cut costs, and this might be another way to do it if an agreement is reached.
Click to Enlarge Taking a look at the chart, Boeing stock was trading at all-time highs in the first part of November. The $130 level acted as some resistance before BA stock finally broke above it.
Since the beginning of November, Boeing stock has never closed below $130. For this trade idea to profit, that streak needs to continue.
Another interesting and beneficial attribute of this trade is the implied volatility. With the uncertainty in the market lately, option premiums have slowly risen. Boeing stock options are no exception, as the IV is above their 30-day historical average.
Take off, Boeing!
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.