by John Jagerson and Wade Hansen | March 5, 2014 9:19 am
We’ve initiated a new bullish trade on Boeing (BA). As bullish momentum starts to take off again on Wall Street, we think it’s a great time to jump on board another flight with BA, the Dow’s top performer in 2013, and make a play on Boeing stock price.
Boeing stock price was knocked down a notch in late-January after the company reported phenomenal earnings but also weaker-than-hoped-for guidance. Many traders saw this as an opportunity to take some of the profits that had accumulated during 2013 off the table. However, since its pullback, BA has started to recover. The stock is currently sitting just below resistance at about $132 — the price marked by the stock’s gap lower on Jan. 29. This same price level also served as support during all of November and early-December 2013.
To best play this, we recommend that you ‘buy to open’ the BA April 140 Calls (BA140419C00140000) for a maximum price of $0.85.
We anticipate the momentum that existed behind this stock in 2013 is going to return — just as it has to so many momentum stocks from last year — and that Boeing stock price is going to break up through the $132 level and move back toward the highs it reached in mid-November and mid-January.
That’s why we are buying the $140 strike price. It may currently be an out-of-the-money (OTM) strike price, but it should soon be the at-the-money (ATM) strike price, which will benefit our option premium.
A quick note about “moneyness,” remember, there is typically only one strike price that is considered “at the money.” That strike price is the one closest to the current stock price. At the money options may be a little in or out of the money. They will, however, always be the strike price that is closest to the current stock price.
The in the money strike prices are those with “intrinsic value.” Intrinsic value means that the right conveyed by the option is worth something. For example, if you owned the $8 strike call, you have the right to buy the stock for $8 a share. If the current price of the stock is $12.00, the option has intrinsic value of $4.00 per share.
While there are volumes that try to explain how options are priced and valued, the takeaway is that Boeing is setting up for a bullish move. To get a sense of the kind of year BA is having in 2014 and why we think Boeing stock price is gearing up, the company is already looking at orders of $3 billion from Thailand’s Nok Airlines, $15 billion from Singapore Airlines, $3.8 billion from Turkey’s SunExpress and $4 billion from the Australian government since its earnings announcement.
Coupled with the promise to increase 737 production from 38 per month to 42 per month, we think BA’s new orders are going to go a long way toward improving the company’s bottom line.
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.
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