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Boeing Bears Emerge Ahead of Earnings

BA put buying has accelerated heading into tomorrow's earnings report

by 1/29/2013 1:34 PM
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Plagued by concerns regarding the company's now-grounded Dreamliner 787 planes, options traders are waxing pessimistic ahead of tomorrow's earnings release from The Boeing Company (NYSE:BA - 73.50). In fact, speculators on the major options exchanges have been picking up BA puts over calls at a rapid-fire rate of late.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.61 registers in the 72nd percentile of its annual range. Or, in simpler terms, option buyers have initiated bearish bets over bullish at a faster-than-usual clip during the past couple of weeks.

In the front-month series, option traders have honed in on the February 70 put, which has seen open interest climb by more than 10,000 contracts during the past 10 sessions. This out-of-the-money strike now harbors peak put open interest of more than 14,700 contracts outstanding.

In today's session, speculators are playing it safer with the February 72.50 put, which has seen close to 1,800 contracts traded thus far. The majority of the puts have crossed at the ask price, and implied volatility is trending higher, hinting at buy-to-open activity.

By purchasing the puts at a volume-weighted average price (VWAP) of $1.26, the buyers will profit if BA breaches the $71.24 level (strike minus VWAP) by the closing bell on Friday, Feb. 15. However, even if Boeing reports stronger-than-expected earnings and enjoys a subsequent bounce, the most the buyers can lose is the initial premium paid for the puts.

That's not to say the stock's front-month puts are cheap, though. In fact, the equity's Schaeffer's Volatility Index (SVI) has ascended heading into tomorrow's earnings release, and now stands at 25% -- higher than 59% of all other readings of the past year. In other words, front-month options players are paying a relatively pricey premium to roll the dice.

Boeing Schaeffer's Volatility Index

At last check, BA has given up 0.7% to hang out in the $73.50 region. The shares have surrendered almost 6% since touching a new annual high of $78.02 at the start of the year, and have underperformed the broader S&P 500 Index (SPX) by almost 8 percentage points during the past month.

Off the charts, the blue chip has topped analysts' per-share profit projections in each of the past four quarters, according to Thomson Reuters.


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