Boeing Is Still Soaring In Spite of Today’s Air Pocket — Get On Board

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Boeing Is Still Soaring In Spite of Today’s Air Pocket — Get On Board

Source: Wikimedia

This earnings season has not the been the catalyst to stock prices that it could have been. This is most true for stocks like Boeing (NYSE:BA) and Caterpillar (NYSE:CAT) who have been in the direct line of fire of the US vs China tariff potential wars.

It is easy for investors to punish BA stock on every antagonistic headline. This happens in spite of excellent fundamentals. Case in point, this morning Boeing stock is down nearly 3% on yet another headline from President Donald Trump threatening another escalation against China.

The last six months have been pretty violent for Boeing. Its stock has seen several 15% rallies and corrections This is unusual for a stock that has visibility into its income stream for decades to come. BA has a backlog of sales for at least 10 years, so under normal circumstances it is unreasonable for its stock to be this volatile.

Nevertheless, investors have to endure these artificial fluctuations in the price for as long as these headlines persist. But therein lies the opportunity today.

This situation doesn’t mean that the stock is a dud. BA just set a new all time high on June 4th so investors are still willing to brave its ownership. Headlines aside, BA is firing on all cylinders and its stock is a buy under normal circumstances.

Wall Street experts agree, because their average price target is still 15% higher than current price. So dips are opportunities to add longs in BA stock.

Luckily to investors, BA even after this most recent 10% dip has year-to-date out-performed the DOW by 14% points and five times in the last 12 months. Eliminate the headlines and it will resume its rally of the last few years.

This is a proven management team with only one serious competitor so they are the defacto leader in sales. Yes, the stock price has a high ticket price but it’s not bloated. BA sells at a 25 price-to-earnings ratio which is just above Apple (NASDAQ:AAPL) but lower than Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook (NASDAQ:FB).

So owning BA shares, especially if at a discount from current price, is not likely to be a financial faux pas. This is integral to my strategy today. I use options to profit from what other investors fear. I sell downside risk into Boeing stock’s proven support to generate income. If support holds then I win. Otherwise, I own BA shares at a deep discount from today’s price.

When investing, I never assume that I know the perfect time to trade. But using options reduces my need to have perfect entry points. There will be more headlines as President Trump is on a mission to escalate the rhetoric high enough to force the parties to the bargaining table. Using options I can build room for error. This is a rinse and repeat trade for me with a high degree of past success.

BA Stock Trade Ideas

The Trade: Sell BA Dec $240 naked put for $3.25. This is a bullish trade where I have a 80% theoretical chance for maximum gains. Otherwise, I will own shares and accrue losses below $236.75.

Those who want to mitigate the risk that comes with selling naked puts, especially during these unstable times, can sell spreads instead.

The Alternate Trade: Sell the BA Dec $245/$240 credit put spread, where my risk is limited. If the spread wins, it would deliver 10% in yield.

Click here for more of my market thesis and get an ongoing free copy of my weekly newsletters.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.


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Article printed from InvestorPlace Media, https://investorplace.com/2018/06/boeing-is-still-soaring-in-spite-of-todays-air-pocket-get-on-board/.

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