Flood Of Unusual Boeing Call Buying Following FAA 737 Max Update

Boeing Co BA shares traded higher by 3.4% on Tuesday after the Federal Aviation Administration released an update on the grounded 737 Max suggesting the jet could be cleared for takeoff in the fourth quarter, a later return date than Boeing has been anticipating.

A flurry of large Boeing option trades were mixed in nature as investors struggle to determine just how much upside the stock has in a post-coronavirus world.

The Boeing Trades: On Tuesday morning, Benzinga Pro subscribers received 26 option alerts related to unusually large trades of Boeing options. Here are a handful of the biggest:

• At 10:22 a.m., a trader bought 1,000 Boeing call options with a $180 strike price expiring on Aug. 21 at the ask price of $14. The trade represented a $1.4 million bullish bet.
• At 10:25 a.m., a trader bought another 988 Boeing call options with a $180 strike price expiring on Aug. 21 at the ask price of $13.801. The trade represented a $1.36 million bullish bet.
• At 10:41 a.m., a trader sold 600 Boeing put options with a $160 strike price expiring on Nov. 20 at the bid price of $16.851. The trade represented a $1.01 million bullish bet.
• At 12:25 p.m, a trader bought 974 Boeing call options with a $180 strike price expiring on Aug. 21 near the ask price at $14.20. The trade represented a $1.38 million bullish bet.

Of the 26 total large Boeing option trades on Tuesday morning, 10 were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. The other sixteen trades represented calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish.

All four of the largest trades of the day, all over $1 million in value each, were bullish.

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 sizes of the largest Boeing trades, they could potentially represent institutional hedging.

Backlog Shrinking: Boeing has been one of the hardest-hit U.S. companies during the COVID-19 downturn. On Tuesday, the FAA said it will be issuing a Notice of Proposed Rulemaking related to the 737 Max “in the near future.” Following the release, CNBC’s Phil LeBeau said the timeline included in the proposal suggests the Max could be cleared by the fourth quarter, a later return date than Boeing had been targeting.

Boeing reported another 60 net 737 Max order cancellations in the month of June, bringing total net cancellations in the first half of 2020 up to 323 planes. In the first half of 2019, Boeing’s net order total was +21 planes. Boeing’s total order backlog shrank to 4,552 planes in June.

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 during the outbreak.

Boeing shares are now down 44.6% year to date, but up 70.8% since the market bottomed on March 23. On July 17, Wolfe Research downgraded Boeing from Peer Perform to Underperform with a $149 price target and said the firm is concerned about additional 737 Max cancellations and near-term demand for widebody planes.

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 the second wave of the COVID-19 outbreak continues to hurt the air travel industry and Boeing keeps losing more orders than it is gaining.

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