Here's How Large Option Traders Are Playing Boeing As Order Backlog Shrinks

Boeing Co BA shares traded lower by 4% on Tuesday after The Wall Street Journal reported Monday the 737 Max will be undergoing a key test flight as soon as this week.

A flurry of large Boeing option trades were mixed in nature as investors struggle to determine whether or not the Boeing recovery will continue or whether the stock may soon be losing altitude once again due to a second wave of COVID-19 outbreaks.

The Boeing Trades

On Tuesday morning, Benzinga Pro subscribers received 13 option alerts related to unusually large trades of Boeing Airlines options. Here are a handful of the biggest:

• At 9:30 a.m., a trader sold 1,000 Boeing put options with a $177.50 strike price expiring on Friday near the bid price of $2.67. The trade represented a $267,000 bullish bet.
• At 9:33, a trader bought 836 Boeing call options with a $200 strike price expiring on July 31 at the ask price of $8.301. The trade represented a $693,963 bullish bet.
• At 10:02 a.m., a trader sold 400 Boeing call options with a $200 strike price expiring on July 31 at the bid price of $8.45. The trade represented a $338,000 bearish bet.
• At 12:03 a.m., a trader bought 2,500 Boeing put options with a $160 strike price expiring on July 17 at the ask price of $2.82. The trade represented a $705,000 bearish bet.

Of the 13 total large Boeing option trades on Tuesday morning, seven were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Five trades represented calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish.

One trade was executed near the midpoint of the bid-ask spread, a price typically considered neutral.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest Boeing trades, they could potentially represent an institutional hedge.

Backlog Shrinking

Boeing has been one of the hardest-hit U.S. companies during the COVID-19 downturn. On Tuesday, Avolon canceled another 27 737 Max orders after dropping 75 orders in April. The news comes after aircraft lessor BOC Aviation canceled an order for 30 Max jets and Norweigan Air canceled orders for 92 Max’s just last week.

Boeing said it delivered just four total planes in May and reported a backlog of just 4,774 planes, its lowest level since 2013. Boeing reported nine new orders and 18 cancellations in the most recent month.

Back on March 20, Boeing announced it was suspending its dividend and share buybacks in an effort to weather the COVID-19 downturn. In May, the company raised $25 billion via a bond offering to help shore up its liquidity position as it weathers the downturn.

Boeing shares are now down 44% year to date, but up 71.6% since the market bottomed on March 23. On June 26, Bernstein downgraded Boeing shares from Outperform to Market Perform and cut its price target to $165 given no evidence a 737 Max recertification is imminent.

Benzinga’s Take

Boeing’s stock has rallied significantly in large part due to relief that the company will remain solvent in the near term. However, additional upside for the stock from here may be limited if a second wave of infections continues to hurt the air travel industry and Boeing keeps losing more orders than it is gaining.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Transocean Option Trader Bets $1.3M On Near-Term Downside

How To Read And Trade An Option Alert

Photo by Steve Lynes via Wikimedia.