This options strategy could be a smart way to play Boeing's earnings, Goldman says

Published Wed, Jan 11 20231:24 PM ESTUpdated Wed, Jan 11 20233:50 PM EST

Jesse Pound @/in/jesse-pound @jesserpound

Boeing is poised for a strong quarterly report that should send its stock higher and reward options traders, according to Goldman Sachs. In a note to clients on Wednesday, the bank's derivative research team led by Vishal Vivek selected a call option on Boeing as one of its tactical trade recommendations for the early part of this earnings season. Investors have had to be patient with Boeing in recent years, as the aerospace manufacturer was already dealing with the fallout from two high-profile crashes before the Covid pandemic grounded global air travel. However, Goldman analyst Noah Poponak is confident the company is near a turning point thanks to improving free cash flow, Vivek's note said. "With management's stated commitment to becoming investment grade, Noah expects the strong FCF to drive rapid deleveraging and notes FCF inflection as a key factor for the stock moving higher. He also sees potential for management to return cash to shareholders as its cash position improves," the note said. Boeing is scheduled to release its fourth-quarter earnings Jan. 25. Goldman recommends the $210 strike calls that expire Feb. 23. A call option serves as a bet that a stock will rise above a certain strike price before the contract expires. The option allows the holder to buy the stock at that strike price, which would be at a discount to the market. One benefit to using call options is that, if the bet proves wrong and the stock falls instead, then the loss on the trade is simply the price paid to purchase the option at the outset of the trade. Shares of Boeing are off to a good start in 2023, already gaining about 8%.The stock was trading around $207 per share Wednesday afternoon. BA YTD mountain Boeing's stock has risen roughly 8% since the start of the new year. Goldman Sachs is not the only Wall Street firm that is bullish on Boeing. According to FactSet, 73% of analysts covering the stock have either a buy or overweight rating on the aerospace giant. However, the average analyst price target is just above $209 per share. That low average price target could be one reason that the options market for Boeing is still cheap, which should increase the return of a winning options trade. "BA option prices are low ahead of earnings. One-month implied volatility of 40 is only in its 29th percentile relative to the past year," the Goldman note said. — CNBC's Michael Bloom contributed to this report.