Boeing (BA) – Managing Feb Collar

by Dan January 21, 2020 2:51 pm • Trade Updates

Back on December 16th when shares of Boeing (BA) were trading $330 I detailed a hedging strategy called a collar for long holders of the stock who might be looking to define their risk to the downside:

If the company is to full-on halt production then I suspect 2020 estimates get throttled, CEO is out, and the company is in disarray for at least 2020. If I am long, think upside might be capped, but want to define my risk I might consider a collar, selling an out of the money call vs my long and using the proceeds of the sale to purchase an out of the money put of the same expiration, for instance…

-sell to open 1 BA Feb 370 call at $3.60

-buy to open 1 BA Feb 300 put for $6.60

Break-even on Feb expiration:

Gains of the stock up to $370, less the $3 in premium paid for the hedge, the investor could always buy back the short call if stock is above $370 to keep the long intact and suffer losses on the call.

Losses of the stock down to 300 (plus the $3 in premium for the hedge), protected below $300.

Rationale: an investor would place a hedge on a stock in this situation if they did NOT want to sell the shares, but wanted to define their risk tot the downside for a period of time, while also have the ability to participate to the upside to a price. But most importantly, willing o limit potential upside in place of defined risk to the downside.

The stock was halted after trading down after a news report hit that the company will not likely get government approval to deliver 737 Max planes until June or July, far longer than was recently thought.

The stock has broken near term technical support at $320, a level the stock has bounced off of three times since August:

The next spot on the chart that appears to be mild support looks to be the December 2018 low near $293… and then an air pocket down to possibly $250:


If I were long BA and had the Feb 370 -300 collar on as a hedge, it makes sense to manage this stock,. The Feb 370 call that could have been sold when the stock was $330 in mid-Feb is worth 43 cents with the stock halted at $306.27, and the Feb 300 put that went out at $10.43. SO the hedge that costs $3, or less than 1% of the stock price back in mid-Dec is now worth $10. It makes sense to cover the short call, and then turn the long Feb 300 put into a put spread by selling a lower strike put in Feb. For instance, with the stock halted at $306 the Feb 270 put went out at $2.60, the Feb 265 put at $2 and the Feb 260 put at $1.50. If the stock were to come off halt and open lower those puts would likely be bid up to higher levels.

Another alternative would be to close the position, book the gain and use the proceeds to buy a lower strike put or put spread in May or June to protect the long position for longer. It is important to remember that one would only put on a collar to begin with if there interested in holding on to their position, if that is still the case then spread existing position, or roll down and out.