As Tariff Headwinds Hit, Boeing Put Traders Are Already In Position

Boeing put options have been increasingly popular in recent weeks

Apr 4, 2018 at 9:26 AM
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Boeing Co (NYSE:BA) stock had already been lagging in recent weeks based on a belief that a trade war with China would be a significant blow to the aerospace giant. These fears seem warranted now, after Beijing just announced new tariffs on dozens of U.S. products, including aircraft. Shares of the Dow component are trading down 4.6% at $315.52 before the open, which would put them just below the 100-day moving average. BA stock hasn't closed below this level since September 2016.

ba stock price

But as you can see on the chart above, which doesn't show Boeing's pre-market losses, the 200-day moving average is still far below current levels, sitting down near $276. That means the shares would need to fall another 12.5% to come into contact with this trendline. For what it's worth, the equity would still sport a one-year advance of 87% even if these electronic losses come to fruition.

In the meantime, options traders have been battling it out over the stock's near-term trajectory. On the one hand, put buying has seen a major uptick in the past two weeks, with the 10-day put/call volume ratio from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) rising from 0.79 to 1.01. The most popular contract during this time, based on open interest, was the May 300 put.

However, while the majority of the positions here were indeed bought to open, there was also notable sell-to-open activity. And the second biggest increase in open interest in the past 10 days occurred at the April 295 put, which saw almost exclusive sell-to-open activity. In short, bears have been targeting BA shares, but others are expecting the $295-$300 area to hold as near-term support.

Not surprisingly, it's become much more expensive to pick up puts compared to calls. That's based on Boeing's 30-day implied volatility skew of 15.3%, landing in the 84th annual percentile, showing puts are pricing in higher-than-normal volatility expectations relative to calls.

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