When investors think of airline stocks, shares of Boeing Co (NYSE:BA) aren’t likely the first to come to mind. Nevertheless, BA stock is setting up to fly to fresh all-time-highs. And for bulls wanting a first-class trip that won’t cost an arm and a leg — a modified butterfly is just the ticket for passage. Let me explain.
Boeing isn’t an airline stock like Delta Air Lines, Inc. (NYSE:DAL) or American Airlines Group Inc (NASDAQ:AAL) — it makes planes. Boeing is really a defense stock that has learned how to fly higher since BA shares broke out of a massive base in early 2017.
In between ever-present headline cheers and jeers ranging from North Korea to on-and-off China trade war chatter or shady anti-Boeing EU dealings which investors are free to try and sort out for themselves, BA stock is ready to soar into some very friendly territory on the price chart.
BA Stock Weekly Chart
To state the obvious when looking at the weekly chart of BA stock, 2017 was a very good year for its investors after a successful breakout from a two-year-long corrective basing pattern.
But 2018 has experienced a bout of technical turbulence following a runaway “plane” at the tail-end of 2017’s solid performance. The good news for investors is the bullish winds of change look ready to re-emerge in Boeing shares.
The reason for our upbeat forecast is that 2017’s overbought situation has been constructively diffused, with shares establishing a corrective cup-shaped base over the past several months. Currently and as Boeing puts together the finishing touches on a high-level handle consolidation supported by a favorable stochastics setup; once again BA stock looks well-positioned to break out to new highs.
BA Stock Modified Bullish Butterfly
For investors interested in BA stock, one alternative combination using Boeing options that’s well-suited for the situation and does an excellent job of reducing and limited risk is a modified bullish call butterfly. Specifically and with shares at $359, the June $365/$375/$380 call combination for $2.15 or better looks attractive.
Risk below $365 is limited to the debit, or roughly 0.6% of the exposure associated with owning BA stock. That’s a nice insurance policy in the event shares fail to break out in the very near future. On the upside, if Boeing does rally, the break-even at expiration is at $367.15 and just modestly above the pattern high of $365 within the developing handle.
From the break-even point, investors positioned with the butterfly enjoy a dollar-for-dollar profit capture which maxes out at $7.85 if BA stock lands on $375 at expiration. That would be nice, but unrealistic as the outcome requires perfection from both time and price.
Maybe more realistic, if shares proceed to really take-off, this cost-cutting strategy’s guaranteed profit of $2.85 above $380 in BA stock is the type of protective trade-off bulls should be quite happy with.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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