(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Boeing Co. (BA) stock has risen by approximately 100% in the past 52 weeks and was the Dow Jones Industrial Average's best-performing stock in 2017. To this point in 2018, the stock is already up about 15.5% in 2018, beating the S&P 500's gain of roughly 7%. But despite the technical trading pattern suggesting the stock may be overextended, some options traders see the stock rising another 9% to nearly $370.
Boeing stock had a tremendous 2017, as jet sales surged on a strengthening global economy. Factor in the company's roughly 30% effective tax rate and the stock could be a big winner from corporate tax reform. All of these factors have helped to lift Boeing's shares. But investors will be on the look out for any warning signs when Boeing reports fourth-quarter results on the morning of January 31. The company is expected to say earnings grew by 16.5% to $2.88, while revenue only climbed by 6.5% to $24.78 billion, according to Ycharts. (For more, see also: Boeing to Boost Dividend Next Month: Wells Fargo.)
Big Trading Range
Options trades are signaling there could be even more room for Boeing to rise, based on expiration set for March 16. The long straddle options strategy is suggesting the stock could rise or fall by roughly 8%, putting the stock in a range of $311 to $370. The cost to buy one put and one call is about $30.
What seems most striking is that calls are favored by nearly 4 to 1, with 2,200 contracts of open interest, compared to only 655 for the puts at the $340 strike. Despite the small number of contracts, the position carries a notional value of roughly $3.2 million, which is a decent amount. The $360 strike price shows there are about 1,260 contracts of open interest, representing approximately $1 million—a small wager. But the stock would need to rise to nearly $368 just for the options to break even. The $320 puts have almost 3,800 contracts of open interest, representing a notional value of about $2.5 million. (For more, see also: Boeing Flies Toward Double-Digit Growth: Jefferies.)
Bearish Technical Patterns
Despite, some of the optimism in the options market, the chart suggests the stock may be overbought, with a relative strength index reading over 70. Should shares of Boeing fall after results, the chart suggests technical support would come at roughly $300, a decline of about 12% from its current price.
Although there are plenty of reasons why Boeing stock could be set to pause from its sharp rise, some seem to be betting that rise is not over—not yet at least.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.