Boeing (BA) – Grey Skies Ahead – July 27th, 2020
Bearish – BA – $173.76
After breaking out above its $323 relative highs from early June with negative divergence, the rally fizzled on mega cap weakness on Thursday and Friday. Our base case remains that markets will consolidate during a big earnings group, with more than 30% of the S&P reporting this week. Only if markets break below $302 or VIX futures goes into backwardation (Front month vs. 3 month) will we shift our base case to bearish views and seek a market hedge.
BA Trade Idea:
On CNBC’s OptionsAction show on Friday, Tony Zhang looked at BA and the upcoming earnings event next week. With the 737 Max recertification looking less likely in 2020 and airlines continuing to delay delivery of 737’s that make up almost 90% of Boeing’s order book, its outlook continues to dim. After fully drawing down its credit lines and losing 13% of its order book in 2020 already, Boeing stock increasingly looks more risky. Expecting BA to guide lower on earnings, Tony is selling a Aug 28 $180/$195 Call Vertical @ $5.45 Credit. As of Friday’s close, these calls were trading for $4.75 Credit.
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