Option trade on Boeing

Boeing (BA) has been in the news more than they would like since the two high profile 737 Max 8 incidents which point to potential flaws in their MCAS system. From a recent high of $446/share, they've dropped 16% down to $374 as of today. Shares bottomed at $362 after the 2nd accident, which is 19% from peak to trough. We see somewhat limited downside from here in the stock considering the stock has already lost $40B in market cap in the past 5 weeks. There's still significant headline risk, and potential financial risks as airlines may seek compensation as a result of various government agencies around the world grounding the aircraft. However, we see two bright spots here, first Boeing likely has provisions in their agreements that would limit losses to carriers in such incidents. Second the exposure to losses shouldn't put a major dent in the $7.5+ billion in cash the company has on hand.

We see an easy way to pocket premium on Puts in the current environment considering where shares are trading on BA. We are selling the May $270 Puts on BA for $0.54 cents, and expect these options to expire with the stock well above this strike price. If the stock declines to $270 or below, we'd have to buy the stock, and we'd be ok with owning it at that price.

Headline risks will be plentiful in the coming days as we don't see global regulators and carriers implementing the rumored software fix without issues, reviews, skepticism and further inquiry into the core issues with the MCAS feature. In the background is the FBI investigation into whether Boeing self-regulated itself vs. the FAA playing it's role in certifying it's aircraft, processes and systems. If we see the stock pull back on major news where it seems the stock could slice through $270 to a much lower level, we'll buy the Puts back at a loss. You could also sell the $270 Puts for $0.54 cents and buy lower strike Puts for protection, but it's too early to need to do that today.