You don’t usually see a blue-chip stock with a $160 billion market capitalization rally over 72% in one year, but that is exactly the kind of performance that Boeing Co (NYSE:BA) has put in in 2017. What’s more, the solid uptrend in BA stock is far from over.
Before we get into our next set of trades, let’s recap last month’s performance. Amid a pullback in the broader market, I highlighted Nov $250 put sell as the main trade for BA stock.
The idea was that if this selling persisted, BA’s stock price would hold firmly above support at $250.
We needn’t have worried, and traders opting for this option were able to keep their entire premium.
As it turns out, the Nov $260/$262.50 bull call spread was the most profitable way to go.
Hindsight is always 20/20, but traders who got into this position were able to close out their trade for a maximum return somewhere near 72% the day before expiration when BA stock broke above $263.
With that wealth of overhead November call option open interest at $262.50 now expired and out of the way, BA stock has spent the past two weeks in rally mode.
The shares rebounded off support at their 20-day moving average, broke out above $265 and are now poised for a showdown with $270.
In the meantime, sentiment has improved on BA stock. Thomson/First Call reports that 13 out of 25 analysts following Boeing now rate the shares a buy or better, up from 12 out of 24 in the days heading into Boeing’s third-quarter earnings report. The 12-month consensus price target has also edged higher, rising to $285.21 from $283.14 ahead of earnings. The new target represents a premium of only 6% to BA’s current trading range, and could see a bump or two as a result.
Turning to the options pits, December options are just as bearish as November’s were the last time we checked in with BA stock. Specifically, the December put/call open interest ratio rests at 1.23, down from November’s 1.55, but still rather pessimistic about BA’s prospects. This lingering negativity could work in BA’s favor, if it unwinds in the form of buying pressure.
As for implieds, December options are pricing a potential move of about 2.8% ahead of expiration. This places the upper bound near $277, while the lower bound rests near $262. Support should emerge near $265, though the staunchest backstop lies at $260. Meanwhile, near-term resistance lies at $270, with an additional speedbump at $275.
2 Trades for BA Stock
Call Spread: I’m bumping the bull call spread to the top this month, as BA stock continues to show strong price action. Traders looking to capitalize on BA’s rally might want to consider a Dec $272.50/$275 bull call spread has you covered. At last check, this trade was offered at 87 cents, or $87 per pair of contracts. Breakeven lies at $273.37, while a maximum profit of $1.63, or $163 per pair of contracts — a potential return of 87% — is possible if BA stock closes at or above $275 when December options expire.
Put Sell: If you’d rather play BA stock a bit more conservatively, then a December $260 put should fit the bill. This put was last bid at $1.08, or $108 per contract.
As long as BA stock trades above $260 through expiration, traders pursuing this strategy will keep the $108 premium. However, if BA trades below $260 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $260 per share.
— Joseph Hargett
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Source: Investor Place