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Bears Swarm The Boeing Company (BA) Despite New Highs

Jan. 2014 75 put second-highest trading strike

by 3/14/2013 12:40 PM
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Shares of The Boeing Company (NYSE:BA - 84.58) touched a new annual high this morning, and are trading at levels not seen since May 2008. And while option players as a whole are trying to cash in via heavy call trading (which is almost double put trading), there was one set of trades that went against today's trend.

The January 2014 75-strike put is the most popular put strike in the pits for BA today, with, 1,672 contracts changing hands so far. Almost all of these went off at the ask price and implied volatility has edged higher, indicating that at least some were probably purchased to open. With a volume-weighted option price (VWAP) of $3.32, Boeing shares need to fall 15.3% to $71.68 (strike minus VWAP) by the beginning of next year for these trades to make a profit. Otherwise, investors would only lose the premium paid.

Given this put is out of the money by nearly $10, this may be the action of shareholders protecting recent profits. Alternatively, it could be aggressive bears hoping negative Dreamliner 787 developments send the shares sharply lower over the next 10 months.

But the aircraft maker appears to be on its way up after getting approval this week to test its solution to the battery problem on its flagship Dreamliner, which has been grounded for most of this year following two incidents of the batteries overheating. BA has climbed more than 12% year to date, and has outperformed the broader S&P 500 Index (SPX) by nearly 11 percentage points in the past month.

Yet today's trades fit in with the larger long-term sentiment toward Boeing among option traders. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the 50-day put/call volume ratio for BA is 0.67, which ranks in the top 4% of similar readings taken in the last year. In other words, puts have been bought to open at a much higher clip than usual over the last 10 weeks -- almost as much as at any time in the past year.


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