Boeing Co (NYSE:BA) has been looking great lately, but it is not the only aerospace defense contractor whose stock has been climbing, or at least not moving lower in a significant manner. Lockheed Martin Corporation (NYSE:LMT) has also built a pretty bullish chart over the last several months. But unlike Boeing, the bid/ask spreads on the options for Lockheed are quite wide. This may be due to the fact that BA stock is traded more often than Lockheed Martin.
Although defense contractors have done fairly well over the past few months, they have also been less volatile like some bigger-name stocks like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Netflix, Inc. (NASDAQ:NFLX), which have had some big moves lower with their big moves higher.
Richard Saintvilus recently wrote that he thought Boeing will soar to $210 sooner than you think. He mentions how the company boasts a strong balance sheet and cash flows in addition to recently raising its core earnings-per-share forecast.
Since this is a relatively short-term trade idea with expiration in less than two weeks, his expectations may or may not influence the stock in that time frame.
Click to Enlarge What makes this trade idea appealing to me is the potential support area as noted at right on the hourly chart. The stock moved above the $198 area on June 19, and the $198 area has been previous support. Now, with the stock currently trading below that level, it may act as a magnet to pull the stock back up to that now-resistance area. This is what needs to happen for maximum profit to be earned at expiration.
I discussed a similar trade idea on Boeing back on May 9 of this year which worked out to be an extremely profitable trade. Let’s take a look at this new trade below.
BA Stock Trade Idea
The Trade: Sell the 07 Jul $197.50 put and buy the 07 Jul $195 put for a credit of 80 cents or more.
The Strategy: The maximum potential profit for this trade is 80 cents ($80 in real terms) if BA stock is trading at or above $197.50 at 07 Jul expiration. Both put options would expire worthless. The maximum loss is $1.70 ($170 in real terms) ($2.50 – $0.80). This would occur if BA is trading at or below $195 at 07 Jul expiration. Breakeven is $196.70 at expiration based on a credit of $0.80.
Click to Enlarge Taking a look at the daily chart of BA below, maybe the key factor to this trade idea being successful is the $200 level. Currently that level is acting as a resistance level and appears to be holding back Boeing stock from moving higher. If resistance is eventually broken, it may allow you to breathe a little easier.
John Kmiecik is the head options instructor for Market Taker Mentoring, and co-author of the eBook 3 Secrets to Making Money in Any Market. Get your complimentary copy of his option trading eBook here. He can be reached at firstname.lastname@example.org. At the time of this writing, he did not own a position in any of the aforementioned securities.