Airlines have been struggling, which is bad for The Boeing Company (NYSE:BA), but the company has been relatively stable since bottoming out in mid-March, and I think it’s an excellent target for a bullish put write.
The company has lost orders for new 737 MAX planes just as safety issues were leaving the headlines, and it has had to cut CEO pay and suspend dividends.
But it’s also one of the United States’ largest manufacturers, and its ties to the country’s national security mean it could be the target for more stimulus.
BA’s Problems are Priced in
As I mentioned, BA has plenty of problems to contend with. Its loss of business meant that it needed stimulus from the government, and after making that request, the company suspended its dividend, paused its share buybacks and canceled chief executive and board pay.
Two of those three things make the stock less appealing to investors, but they happened back in March. By that time, BA had already bottomed out and started to rise again.
The bullish case for BA isn’t that the stock will quickly rise to its prior highs. It’s that it will continue consolidating at its current level.
Warren Buffett recently dumped all his airline stocks, and there is an appropriate level of bearishness around the sector. BA will naturally suffer a little as a result. But at this point, I think investors have pushed it low enough, and the stock’s technical picture looks favorable.
Support at $121
Since bottoming in the upper $80 range in March, BA has risen to resistance and established new support. The stock tested the $121-$122 range as support twice in April, and it is testing it now in May.
Daily Chart of The Boeing Company (BA) — Chart Source: TradingView
If futures traders are to be believed, stocks are set to rise this morning, and I’m betting BA will follow the trend. That would make this the third time support in the $121-$122 range held up.
But there is still some risk involved with BA put writes. Fortunately, high implied volatility has made selling far out-of-the-money options very profitable.
Rather than recommend an option with a strike price close to current levels, I want to look at strikes well below BA’s $89 low. Those options will have an extra layer of support between their strike prices and BA’s current price.
Sell to open the BA May 29th $80 put at about $0.43.
Note: Be sure you are opening the weekly BA options that expire on Friday, May 29, 2020.
About Naked Put Writes
A naked put write is a bullish position in which you expect the price of the underlying stock to increase.
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