Shares of Boeing Co (NYSE:BA) continue to fly higher and reinforce their status as the Dow Jones Industrial Average’s strongest performer in 2017. And despite some political theater, the forecast is for mostly improving conditions suitable for a bull call spread on BA stock. Let me explain.
It has been nearly a month since I penned a bullish piece on BA stock. It has also been a very nice return on investment for some bullish options traders.
Following a terrific run in BA punctuated by a strong and bullish reaction to Boeing’s “close to perfect” earnings in late July, shares are up another 7.5% in the last month. At the same time, our own proffered spread is up nearly 120%. But more on that later.
In the here and now, a bit of political theater is playing out for Boeing and I’m not talking about with North Korea. Instead, it’s with our Canadian neighbor. The legal tiff involves subsidies for Canada-based Bombardier Inc (OTCMKTS:BDRBF) which allowed it to land an aircraft deal with Delta Air Lines, Inc. (NYSE:DAL), which otherwise would have been grounded so to speak.
InvestorPlace’s James Brumley does a nice job of detailing the row and its potential longer-term implications. But for shorter-term operators, the forecast for BA stock continues to look sunny with the possibility of future cloudiness if conditions get too heated.
BA Stock Weekly Chart
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The last time I discussed the technical picture on BA stock on Aug. 25, preparations on our part were being made for Boeing shares to take off higher out of a 4-week flat base.
The forecast for a bullish reactive move took a bit longer than expected. But after a 7-to-8 week holding pattern shares did breakout. As mentioned, Boeing shares have rallied about 7.5% to fresh all-time-highs. It’s also our view BA still has room to climb higher.
Backing the technical opinion are a fairly supportive stochastics and Bollinger Band set up. The combination indicates shares aren’t overbought at the moment and can continue to improve upon the breakout from BA stock’s third stage base.
At this time, I’d guesstimate BA stock could tack on an additional 4% to maybe 6% before conditions get too technically heated and the forecast a bit cloudier for bulls.
BA Stock Bull Call Spread
Our previously selected modified and bullish long call butterfly has performed quite nicely for the period. With shares of Boeing up 7.5%, the spread has gained nearly 120%. In dollar terms, the combination has expanded from $2.15 to $4.70 as of Thursday’s close with an open profit of $2.55 per spread.
Reviewing BA’s options for fresh ideas, I like approaching Boeing shares with a bull call spread and the intention of using additional money management on price movement up or down. With BA at $256.16 the Oct $260/$267.50 call vertical is priced for $2.20 and a favored combination.
For less than 1% BA stock risk, this vertical offers a max profit of $5.30 or return of 240% above $267.50. The potential reward fits in well with our technical forecast. As well, if things go awry and shares falter, the insurance afforded by this spread is definitely attractive.
As noted above, if possible, I’d personally look to reduce risk if the position declines in value by 50%. Likewise, I’d adjust into a low-to-no-cost modified butterfly if a similar type gain is offered on a rally in BA stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and feel free to click here to learn more about how to design better positions using options!
