Using options to bet on a Boeing turnaround

Published Tue, Mar 26 202411:04 AM EDTUpdated Tue, Mar 26 202411:41 AM EDT

Nishant Pant @TheMeanTrader @TheMeanTrader

The shake-up at Boeing this week with the CEO set to step down by year-end has sparked optimism among investors. Here's a way to get bullish exposure to the troubled plane maker with less risk than buying the stock outright. Boeing (BA) has faced significant challenges over the years with the latest incident involving a door plug on an Alaska Airlines 737 Max 9 in January. Numerous groundings and substantial financial losses have come as a result. The stock is down by more than 27% since the start of the year. Shown below is a 6-month daily chart of BA. I have used some technical indicators to form a bullish bias. RSI (Relative Strength Index) analysis: Interpreting the RSI is a fundamental aspect of technical analysis. When the RSI falls below 30, it indicates that the underlying asset, in this case, BA stock, is in an oversold condition. Traders often await a confirmation signal for a potential trend change, which occurs when the RSI moves back above the 30 level. Presently, this is precisely the scenario unfolding with BA, suggesting a possible shift in momentum. Moving averages crossovers strategy: On the chart provided below, three dashed lines represent exponential moving averages (EMAs) - the blue line represents the 8-day EMA, the yellow line symbolizes the 21-day EMA, and the pink line represents the 34-day EMA. One widely used method for identifying trend reversals is by observing EMA crossovers. When the shorter-term 8-day EMA crosses above the 21-day EMA, it signals a potential reversal in the trend. Notably, historical data illustrates the reliability of these crossovers in predicting trend changes. Although a crossover has not yet occurred, adopting a cautious approach by waiting for this confirmation could be prudent for risk-averse traders. The trade To go bullish on BA, the trade structure I have used here is called a bull call spread. You may find trading platforms using other names like call debit spread or long call spread. To construct my bull call spread, I need to buy a $190 call and sell a $195 call as a single unit. Here is my exact trade setup: Buy $190 call, Apr. 19th expiry Sell $195 call, Apr. 19th expiry Cost: $250 Potential Profit: $250 If BA trades at or above 195 by the expiration date, this trade could yield a return of 100% on the amount risked. With 10 contracts, this equates to risking $2500 to potentially gain $2500 DISCLOSURES: Nishant currently has a BA 190-195 call spread expiring on 4/19/24 THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.