Boeing Scandal Brings Option Bears

BA shares are pacing for their worst day since May

Oct 18, 2019 at 1:46 PM
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The shares of Boeing Co (NYSE:BA) are getting wrecked today, down 4.3% at $353.34, after Reuters reported that employees may have misled the Federal Aviation Administration (FAA) about a critical 737 MAX safety system. The planes have been grounded since a pair of fatal crashes earlier this year, and sources say the airline issue turned over instant messages from 2016 that the FAA finds "concerning." Against this backdrop -- and ahead of earnings next week -- BA put options are flying off the shelves this afternoon.

So far today, roughly 56,000 puts have crossed the tape, with a hefty chunk of that volume coming after the Reuters report. This volume has already more than doubled Boeing's average daily volume of around 26,000 puts traded.

Digging deeper, it appears some eleventh-hour bears are picking up the now in-the-money October 355 put -- the most active option so far -- ahead of expiration at the close tonight. Outside of the expiring October series, the November 300 and 275 puts are the most popular. New buyers of these options expect BA shares to sink beneath $300 and $275, respectively -- and to new year-to-date lows -- before options expiration on Friday, Nov. 15.

The November put buyers could be betting on -- or hedging against -- a post-earnings plunge for BA shares. The blue chip is slated to report its third-quarter figures next Wednesday, Oct. 23. After reporting earnings in July, the equity dropped 3.1% in the subsequent session.

After its last eight quarterly reports, BA stock has moved 3%, on average, regardless of direction. This time around, the options market is pricing in nearly twice that -- a 5.9% swing, specifically -- per at-the-money implied volatility data. The security sports a Schaeffer's Volatility Scorecard (SVS) of 84 out of a possible 100, meaning BA stock has tended to exceed options traders' volatility expectations over the past year.

Today's plummet is shaping up to be Boeing stock's worst session since mid-May. The equity is also on pace to breach its 120-day moving average -- a trendling that's acted as both support and resistance in 2019 -- for the first time in more than a month.

BA stock chart 1018




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