Boeing (BA) option strategies after earnings and an upgrade

Boeing BA is seeing some bullish attention this week surrounding its second-quarter earnings report. Wednesday ahead of the open, the aerospace name said second-quarter earnings came in at $1.06 per share, a nickel better than the consensus view. Revenue fell short of the mark, however. Nevertheless, Jim Cramer told his Mad Money audience that he likes the stock in the long term, particularly if it tests the $65-$66 region.

Thursday morning, Societe Generale offered its insight, upgrading Boeing from “sell” to “hold”. Interestingly enough, the firm maintains a 12-month price target of $65, which actually allows for a bit of downside in the next year. Whether you are a Boeing bull yourself or think the stock could stay range-bound, we’ve outlined a couple of option strategies below as examples of how varying outlooks can be represented by options. Remember that these are not buy/sell/hold recommendations. The prices are taken Thursday afternoon, when the stock was trading at $67.45, up 13 cents on the day.

Bullish Option Strategy: Bull Call Spread

Investors expecting a short-term pop higher in the shares could consider a bull call spread. The September 65/70 spread – buying the 65 strike, selling the 70 strike – is currently priced at $2.65 (the net debit). If Boeing ends up moving lower (and is specifically trading below $65 when the options expire on September 17), the most this spread can lose is the $2.65 premium paid.

The most the spread can earn, should BA move above $70, is $2.35 (the difference in strikes minus the net debit paid), for a return on risk of 88.7%. Breakeven is $67.65, or the long call plus the premium.

For more information on bull call spreads in general, check out our free webinar on the topic on August 10, when this strategy is dissected in the “Two Traders, One Strategy” series. And you can always access past strategy webinars from our events page.

Boeing (BA) Bull Call Spread

Neutral Option Strategy: Iron Condor

If you agree with Societe Generale’s “hold” rating, the iron condor strategy assumes the stock will trade within a predetermined range. An investor with a neutral opinion on BA shares could consider selling a November-dated iron condor by executing the following orders:

Sell the November 60 put
Buy the November 57.50 put
Sell the November 72.50 call
Buy the November 75 call

The iron condor essentially combines two credit spreads – a bull put spread and a bear call spread. The net credit collected for this four-legged trade is $1.31. If BA is trading anywhere between the short strikes (60 and 72.50) at November expiration, the trader keeps this credit as profit.

The maximum loss, defined as the difference between call/put strikes minus the credit, is $1.19. Maximum loss occurs if BA is below 57.50 or above 75 when expiration rolls around. Breakevens for this condor strategy are $58.69 to the downside and $73.81 to the upside.

Boeing (BA) iron condor