There’s a lot to like about Boeing Co (NYSE:BA). But after climbing to record highs, investing in BA stock with less risk and without timing the market is an option if investors look to use a bullishly targeted spread in lieu of going long Boeing shares. Let me explain.
As a Dow Jones Industrial average constituent, Boeing is obviously a blue chip of some worth with investors. In fact, on paper BA stock is worth more than $120 billion to its collective shareholders.
BA stock is also more than a bit valued by investors like myself sharing their insight with others. Close to home, that’s more than a bit apparent if one merely scrolls through the recent archives of InvestorPlace.
Sentiment regarding BA stock of late has been uniformly bullish. And that has been a boon for some readers, to be sure.
One article by Richard Saintvilus which gave a big thumbs up to Boeing just two weeks ago is already in-the-money by about 6%, hitting his price target with Monday’s test of $200 — and well ahead of schedule, I might add.
Somewhat surprising, among Wall Street’s analyst sell side community, favor is less uniform. BA stock has three sells, three outperforms and is split with 10 buys and 10 hold recommendations. Shares also have a “folks we’ve reached our cruising altitude” price target of $189.29 that’s a bit below with Monday’s closing price of $199.08.
The reason I think it’s surprising to see Wall Street’s less enthusiastic endorsement of BA stock is a combination of factors including a healthy dividend, low payout ratio, double-digit growth, recent upwardly revised guidance, strong and improving cash flows and a healthy backlog.
Rather than the Street’s view being a red flag though, my guess is analysts will need to play catch-up down the road. If correct, that could act as a beneficial tailwind of sorts for BA stock. However, that’s not to say I’m not worried about the possibility of mild turbulence for BA stock in the near-term forecast based on its weekly price chart.
BA Stock Weekly Chart
As the weekly chart of BA stock reflects, it has been all systems a-go for BA stock since last September when shares began lifting higher out of a substantial first-stage corrective base of nearly two years in length. Looking forward however, I’m personally less confident Boeing will continue to climb unimpeded.
My technical view is based on a couple factors. The rally out of the pattern breakout is closing in on an equal-size or measured move bullish reaction. BA stock’s position is also somewhat aggressive relative to its Bollinger Band. Lastly, shares have broken above a slanted up-channel line and the stochastic indicator is nearing an overbought condition.
Net, net I’d estimate BA stock may have another few percent of upside, but I’m also forecasting shares are likely to stall and be thrown into a holding pattern once more in the not-too-distant future.
BA Stock Bullishly Targeted Butterfly
Given my view on BA stock isn’t bearish and being receptive to the idea that Boeing may have a little bit of a rally left in it before flashing overt signs of technical danger; I like approaching shares with a bullishly targeted long call butterfly.
After reviewing the options board on Boeing shares, the Aug $200/$210/$220 call butterfly combination stands out. With BA trading just over $199, the butterfly is priced for $2.35, or just over 1% of the risk associated with an equivalent long Boeing position.
So, what does a bullish BA stock investor get with this position? First, should shares get seriously grounded and move into a deeper correction during the life of this position, the small debit acts as a very strong insurance policy compared to holding a long stock position.
Second, this spread offers a nice-size profit zone at expiration which spans from $202.35 to $217.65. Thus, if BA stock rallies by 1.7% to roughly 9.4% over the next two months, some type of profit will exist. And the sweet spot at $210 would amount to a gain of $7.65 or 325% if shares can climb by 5.5% above current levels.
This type of BA spread is likely to forgo the next dividend barring an exercise, but the flat contract count of countering long and short calls also means it’s not really an issue, other than possibly from an income perspective.
Further, with earnings next month, drastically reduced position risk versus long stock and the type of pragmatic profit design which can help traders from ejecting prematurely from a still friendly trend that could continue to rally; this looks like a nice alternative way to get long BA stock.
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.
