Considering Our Options – $BA Long Put

by Enis January 17, 2013 8:04 am • Commentary

With BA trading at $72.80 as I write at 7:45 am EST, what are my options for my current long put position?

  1. Take the trade off after the open.  This is what I’m leaning towards, since most of the bad news has been released at this point, and I only have one day until my Jan 72.50 put expires tomorrow.  The trade has been worthless on several occasions, so I can take my partial loss here and move on.
  2. Wait to see how the stock trades.  The risk to this decision is that the stock immediately rallies after the open, and my put options quickly moves close to worthless.  Of course, I could get lucky by waiting and see the stock trade lower as well.
  3. Spread the trade.  Since there is only one day to expiry, there will not be much value in the Jan 70 put strike, so this is not really a viable option with stock trading 72.80.
  4. Roll the trade.  I could sell the Jan 72.50 put, and buy a Feb 70 or 72.5 put to keep my short delta in case I think BA is going lower.  However, given that BA is down $4 in the past 2 days, this seems like a bad time to add more premium to get short delta.

Put it all together, and I’m likely going to take the trade off after the open if it’s worth 0.40 or more.

Considering Our Options Jan 8th, 2012 at 1:46pm:  

Back in late November, I put on a bearish trade in BA, (originally a calendar spread that I modified into a long put, detailed below) that was left for dead just a few days ago.  In a quick change of circumstances, BA has sold off $4 this week, as there have been 2 separate incidents of Dreamliner 787 planes encountering technical issues.  What are my options for my current position?

I am long the Jan 72.50 put for a total cost of $1.30.  The option is currently trading around $0.75 with the stock at 73.60.  Here is what I’ve considered today:

  1. Take the trade off here, and take my $0.55 loss.  While the Dreamliner problems are concerning, the long-term impact of these sorts of stories on the underlying business are usually minimal.
  2. Sell the Jan regular expiry 70 put at 0.28 to reduce my cost down to 1.02 and take in at least some premium on today’s selling.  The risk/reward of being long a 2.50 wide put spread for 1.02 doesn’t look great, but at this point, I’m managing a losing position.
  3. Sell the Jan 11th weekly 72.5 put at around 0.45 to reduce my cost to 0.85 on the total position.  I will then have a 72.5 weekly put calendar, and hope that this week’s put expires worthless, but BA moves below 72.50 next week.  This action helps me monetize today’s move but takes in more premium than action 2).
  4. Leave the trade on as is and hope BA continues to move lower over the next 8 trading days.


I am leaning towards action 3).  I want to take in some premium given the fact that this trade was a complete loser as of Friday.  But by selling the weekly put as opposed to my existing position, I am only foregoing about 0.30 in premium for the chance that BA moves lower next week.  I will of course post any updates to the trade in real time when I pull the trigger.




Trade Update Nov. 29th, 2012 at 1:15pm:  This is a rather quick change in stance from a trade I initially put on 2 days ago.  But circumstances have changed, so I have modified the trade.

My original thought on the BA was that I would wait for the Dec 72.5 put to decay over the next couple weeks, then revisit the Jan13 puts that I was long.  But 2 things changed my mind:

  1. BA tested $75 this morning, and sold off from that previous high.  I think lower prices from here are more likely as a result
  2. Given the nature of the daily tape bombs from Congress, I do not want to be caught short the Dec 72.5 puts in case BA makes a quick move lower through my strike.  At that point, I’d be left with quite a dilemma of what to do because my overall view is that BA is going lower.

Add it all up, and I’ll take the small gain from the Dec 72.5 put (0.08), and take a more bearish stance in BA, remaining long the Jan13 72.5 put outright for now.  On BA’s next move lower, I’m going to look to spread my long Jan13 72.5 puts by selling the Jan13 70 puts, as 70 is important support in the name.

Action: Bought to Close BA ($74.33) Dec 72.5 put for $0.61, Leaves me long BA Jan13 72.5 put for total cost of $1.30


Original Trade Nov 27th, 2012 at 1:48 pm:


As negotiations start to heat up, many of the previous fiscal cliff trades have been tossed aside.  The market feels confident that a deal will be reached, so on to the next trade, right?  I doubt it, seems a bit too complacent to me.  A deal will likely be reached, but we are still quite far away from knowing the details of that deal.  In the interim, I expect the uncertainty from the negotiations to start reflecting in stock prices once again.

Boeing is one name that I’ve been watching, since it’s about 50% domestic sales, and about 50% of the business is defense (the other 50% commercial airplanes).  Boeing has been on my radar since they announced a “restructuring” a couple weeks ago (I’ll address why restructuring is in quotes in a bit).  The stock caught an immediate bid, and hasn’t seen the $70 level since.  Sure, it’s been helped a bit by the broader market’s rally, but there were a lot of new buyers who gained confidence from the company’s announcement.  Here is the 1 year chart:



I’ve drawn the 200 day moving average in gray, now sitting at 72.80, in the middle of the range between 68 and 78 where the stock has traded for essentially the entire year.  It’s a 15 P/E stock with 6% projected growth for next year, and a 2.4% dividend yield.  You can see the large volume rally that occurred on Nov 9th, and the stock is trading at the high end of the past 6 months.

The recent rally on “restructuring” reminds me of what happened in FDX in October.  Here is the 6 month chart for FDX:



FDX saw a high volume rally on Oct 10th as a result of its own “restructuring” announcement.  But over the next month, that rally petered out, and the stock is trading back below its 200 day ma.

When I hear “restructuring” announcements from these large multinationals, I tend to view it as a euphemism for declining sales rather than a positive announcement about cost cuts.  Of course, any company will want to keep costs down.  But it’s a big difference between striving for efficiencies and being forced to cut costs as revenue declines.  In my experience, “restructuring” tends to fall in the second bucket, indicating more negative future prospects.

Along those lines, I expect some weakness in BA over the next couple months.  However, the mere prospect of a deal should make for choppy back and forth trading in December.  So I don’t want to take a pure bearish put trade and watch my premium decay on the chop.  That’s why I chose the calendar:

Trade: BA ($74.30) Bought Dec / Jan13 72.5 Put Calendar for $0.69

-Sold 1 Dec 72.5 put at 0.69

-Bought 1 Jan13 72.5 put for $1.38


Trade Rationale:  I chose the calendar because Dec and Jan13 are priced at almost the same implied volatility, when I think the implications of a deal won’t be known before Dec expiry.  There is still a lot to be worked out in the next month, so I expect Jan13 is much more likely to capture any volatility from the deal implications.