Some analysts are finally preparing for takeoff in Boeing Co (NYSE:BA). But with BA stock flying at record altitude and quickly hitting our price target, this strategist suggests cutting risk before more threatening conditions force investors toward the emergency exit. Let me explain.
Nearly a month ago, I wrote an article on BA stock that called for safely riding its staunch technical trend using the options market to guard against turbulence.
This strategy has worked incredibly well. The spread has gone on to return over 50% with a current profit capture of $1.25 compared to 5% for investors holding BA stock from $199 to $209 over the period.
And there’s huge room for profit improvement if BA stock simply continued to cruise at its current levels. But what’s remained an obviously friendly trend shouldn’t be taken for granted, despite what other passengers just climbing aboard are now saying.
Last time, I discussed the opportunity that Wall Street’s less-than-enthusiastic endorsement of BA stock could actually work to benefit Boeing investors. The idea was that analysts would need to play a game of catch-up, as the overall recommendations and consensus price target were out of touch with Boeing’s fundamentals.
Now it appears that Wall Street is waking up to Boeing’s healthy dividend, low payout ratio, double-digit growth, recent upwardly revised guidance, strong and improving cash flows, and a healthy backlog. This past Friday, JPMorgan upgraded BA stock to “overweight” from “neutral.”
To JPMorgan’s credit, a price target lift from $205 to $240 at least had the firm ahead of a queue of other flatfooted analysts. Yet, I can’t help but worry. While BA stock “only” has 15% upside to its December 2018 price target of $240, analysts consider the upgrade warranted “in a market where outsize upside is elusive.”
BA Stock Weekly Chart
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With Boeing shares positioned outside the upper weekly Bollinger band, flirting with an overbought stochastics condition in the top spot in the Dow Industrials this year with a gain of around 34%, this analyst is keeping his price target of $210, but placing BA stock as a “reduce and hold” recommendation.
BA Stock Bullishly Targeted Butterfly
As promised above, back on June 20., I proffered a bullishly-targeted long call August $200/$210/$220 butterfly on BA stock as a safer strategy for investors. With shares rallying from just over $199 to $209 the position has increased by 53% from $2.35 to $3.60 for a profit of $1.25.
In a perfect world shares of BA will land on $210 at expiration one month out and allowing the butterfly to continue expanding up to $10 in value and netting $7.65 for the investor.
More pragmatically, it’s a great time to reduce, take partial profits on this limited risk spread and hold or ride a smaller position toward a target that’s tracking incredibly well in BA stock, but will likely prove elusive in a way not recognized by JPMorgan.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
