Boeing Co (NYSE:BA) has been flying high in 2017, but a recent quarterly confessional points to the increased likelihood of some shareholder turbulence in BA stock. This is an excellent opportunity for prepared and creative investors using Boeing’s options market.
Let me explain.
No doubt readers have come across BA stock’s Q3 earnings report. As the proverbial “best in breed” constituent in the Dow Jones Industrial Average this year with a less-than-doggish gain of nearly 70%, investors have more reasons than otherwise to sound off on why BA stock is a buy, sell or hold with each piece of new information.
It’s this strategist’s opinion the latest report wasn’t the greatest or at least not the kind of fuel to suggest BA stock isn’t running on fumes at this point. Overall, the results look mixed when weighing items like Boeing’s modest beat, decent but not “wow-worthy” guidance and weaker-than-expected revenues in a couple of its key businesses.
So, what’s next? Given BA stock has been flying high this year I don’t mind saying its likely time for shares to lose a bit of altitude, but potentially worth boarding at lower prices.
BA Stock Weekly Chart
The last time I wrote about BA stock in late September, I guesstimated shares could probably tack on an additional 4% to 6% before conditions were likely to become a bit technically heated and cloudier for bulls.
At the recent highs, shares gained just over 4% to confirm our estimated upside potential.
It’s time to be more defensive buying into the BA stock narrative. This is especially true when you consider its massive year-long rally that has failed to produce one meaningful correction and the fact that shares are establishing a weaker fourth-base pattern that has an increased likelihood of failure.
BA Stock Modified Bear-to-Bull Spread
A bull call spread on Boeing discussed back in the second half of September yielded more than a double as it expanded from $2.20 to $4.75 into October expiration. “C-A-A-C-H-I-N-G!”
Reviewing the board Monday evening for fresh ideas and being a bit more cautious on BA stock near-term, I like approaching the name with a modified bear-to-bull long put butterfly spread as it offers cautious investors a way to buy at lower prices with limited risk and the possibility of capturing a profit in the process.
One favored design is the Dec $250 / $245 / $235 put combination for even money with shares at $264.07. Ultimately, at expiration, if BA stock has traded lower but remains above $250, it’s a no-harm, no-foul situation for the spread trader as no money changes hands.
If shares move below $250, the spread gains intrinsic value and allows for a max profit of $5.00 at $245 on expiration. The trader’s break-even is at $240 or a full 9.1% below current prices. Also attractive, the max risk is contained to roughly 2% of BA stock below $235. At the end of the day and given BA stock’s run, that sounds and looks like a much smarter way to decide if it’s time to buy Boeing.
Disclosure: 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!
