Boeing Co (BA) Hit by Headwinds, Option Bears

Boeing Co (BA) is slumping on a downgrade from BofA-Merrill Lynch

by Alex Eppstein

Published on Apr 20, 2016 at 11:41 AM
Updated on Apr 20, 2016 at 4:01 PM

Boeing Co (NYSE:BA) has slid 1.8% today to trade at $130.27, after BofA-Merrill Lynch cut its rating to "underperform" from "neutral," citing an "unachievable" cash flow forecast related to the aerospace firm's 787 Dreamliner program. Bearish options traders, meanwhile, are on the prowl ahead of Boeing's earnings report next Wednesday morning.

Diving right in, over 10,000 put options have crossed the tape so far, doubling the expected intraday pace. Most active is the weekly 4/29 130 strike, where traders are buying to open positions in the hopes of extended losses south of $130, through next Friday night's expiration.

This represents quite the change of pace, relative to BA's recent options trading history. Specifically, during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open 1.23 calls for every put. The corresponding call/put volume ratio ranks in the bullishly skewed 88th percentile of its annual range.

That's not to say skepticism is lacking on the Street. As evidenced by the aforementioned downgrade, analysts aren't sold on BA. In fact, eight of 13 consider the shares a "hold" or worse. Likewise, 27 million shares are sold short -- a multi-year high -- which would take roughly one week to cover, at BA's typical trading volumes.

The skeptics have their reasons, too. Boeing Co (NYSE:BA) has had a turbulent 2016. Year-to-date, the aerospace stock has dived 9.9%, and its recent rally was swatted down by the descending 160-day moving average. More losses could be in store after earnings next week, too, as BA lost 8.9% in the session following its late-January report.

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