Boeing Options Traders Betting on Q3 Earning Miss

In the October 18 trading session, The Boeing Company stock (BA) closed at $344.00, down 6.79% from the previous session on renewed 737 Max scandals. Boeing’s market performance lagged well behind the S&P 500’s 0.39% fall for the day. The Dow Jones, meanwhile, lost 0.95%. The Nasdaq fell 0.82%.

In addition to Friday’s tanking, Boeing stock has returned -11% over the past month. So the stock has underperformed the broader aerospace and defense industry. The industry has returned -3.2% over the same timeframe.

Boeing is slated to report its third-quarter earnings on October 23 before the opening bell. Currently, Wall Street analysts expect BA‘s earnings to fall 36.94% in the third quarter to $2.18 per share. Following this trend, analysts forecast that Boeing’s Q3 revenue could fall to $20.16 billion. This estimate implies a decline of 19.82% on a year-over-year basis.

Some options traders are actively betting that BA stock will fall in the coming weeks. So let’s discuss Boeing stock’s recent options trades and what they mean for investors ahead of Wednesday’s big announcement.

5% move in Boeing stock

The implied volatility for the options, at a $345.00 strike price that expires on October 25 stands at 121.89%. This number means investors are expecting an event that could cause significant movement in one direction or the other.

Looking at the October 25 options, you’ll note a bid/ask for the $345.00 call option of $9.10/$ 9.35. You’ll also see a bid/ask for the $345.00 put option of $9.80/$ 10.00. Bear in mind the options strike closest to BA’s last closing price of $344.00. We can calculate the expected price move using these options’ mid-prices:

9.90 (345.00 Put) + 9.225 (345.00 Call) = 19.125/344.00 = 5.5%

The options imply, as you can see, that BA stock could rise or fall by ~5% by the October expirations from the $345.00 strike price. This estimation uses the long straddle strategy. And our assessment means Boeing stock would trade in a range of $326.8–$361.2 by the expiration date.

As well, the puts at the $345.00 strike price outweigh the call options by about 11:1. There are 215 open puts to 20 open calls. Moreover, the puts at the $325.00 strike price outweigh the call options by about 135:1 with 270 open puts to 2 open calls. A buyer of the $325 strike price puts would need Boeing stock to fall to about $322 by the expiration to break even. The imbalance here suggests bearish market sentiment for Boeing stock.

Bearish options bets on Boeing stock

The options for BA stock, which expire on November 15, saw increased put buying in the last trading session. According to Barchart.com, the open interest for the $280 puts rose by 1,900 contracts to a total of 1,933 open contracts. For the buyer of the $280 puts to earn a profit, Boeing stock would have to fall to about $278.80.

Also, the open interest levels for November 15 $300 puts increased significantly over the past two weeks. According to Barchart.com, the open contracts rose by 742 contracts to about 5,072. The open interest represents a total dollar value of about $500,000. Before a buyer of the $300 puts could profit, Boeing stock would need to plunge to around $299.

Analysts’ coverage and target price

Wall Street analysts have mostly upgraded BA over the last six months, but the stock just received a major downgrade. For Boeing, the consensus price target is $407.25, meaning 18.39% upside. See MarketBeat for a detailed breakdown. According to TipRanks, BA is a “moderate buy” with an average price target of $425.92, which represents 23.81% upside. And finally, among 16 analysts covering BA stock, ten recommend it as a “buy” and six recommend it as a “hold”

Looking for more companies that options traders are actively betting against? Check out General Electric Stock: Be Careful, Investors and Netflix Stock: The Decline May Just Be Starting.