Aborting a Put Back spread at Boeing-Schaeffer's research

Andrea Kramer (akramer@sir-inc.com)

Early Tuesday, the company Boeing (BA) said that it has no plans to evacuate one of the approximately 200 Japan-based workers, and that they expected to deliver the oft-delayed 787 Dreamliner 35% of which was manufactured in Japan in the third quarter as planned. "I believe [our Japanese suppliers] facilities are intact," said Vice President of Marketing Randy Tinseth Reuters, adding that the blue chip "believes we have all the components that we need for the first delivery."

Meanwhile, Boeing also predicted that Southeast Asian airlines more than 370 billion dollars worth of new aircraft in the coming decades will have to meet the demands of traffic that it expects growth to increase by 6.9% a year and renew aging fleets.

Nevertheless, the shares in BA fell in step with their peers broad-market on Tuesday and it seems to be an options trader can bet on yet more disadvantage for the stock in the short term.

Yesterday afternoon, it seems as though the speculator April several thousand $ 65 move for 1.03 per piece, and then bought his pessimistic position funded by simultaneously sell half as many April 70 for every $ 2.78. In other words, the trader built a ratio put spread back on BA for a net credit of $ 0.72 ([$ 2.78 x 1 contract]-[$ 1.03 x 2 contracts]).

The objective of the strategy is for the stock of BA to tumble significantly in the next couple of weeks--enough so that the intrinsic value of the 65-strike puts is greater than the cost to buy back the written 70-strike brings. However, even if the stock continues to stagnate, maximum loss of the trader is capped at $ 4.28 (difference between strikes minus net credit). What's more, BA must finish on or above the level of $ 70, all of the puts will expire worthless, so the investor to retain the $ 0.72 received credit at the start.

At last check, BA has specified 0.6% to flirt with the region of $ 69.25. From a longer-term perspective, equity is on pace to notch his first Friday finish under its 10-week trend line this year, but seems to have found a foothold atop his 20-week moving average.