Monday, April 18, 2011

"Boeing - Cleared for Take Off"

That was the headline of the featured story in the Barron's this weekend. The stories theme was that the stock "could soar 35% over the next two years". Fortunately CCI readers who read the article below had "boarded early" for this take off...LOL

More seriously, it feels good to have the financial press get behind one of your picks, but the real question is "would this publicity create an opportunity to manage/improve this position ". I woke up this morning thinking the stock would be up a few percent on the usual "Barron's bounce". (yes, its true, the stock featured in a Barron's cover story almost always bounces up on that Monday). I thought perhaps a big bounce might provide an opportunity to establish covered call for some income generation and hedging going into earnings.

Surprisingly the stock went down this morning along with the market (something about the always "thorough, timely, and independent" credit rating agencies coming to the realization that the US government is not exactly fiscally prudent or well run.....shocking news to us all...I'm sure.....but I digress). With the stock down, I changed tactics and decided it was time to take a flier towards acquiring the third lot of the position described in the original article.

Sold one lot worth's of the May $72.50 puts for $2.21. (3%) Possible outcomes

1. The stock tanks and/or stays just below $72.50 over the next month. This would very likely happen if earning disappoint next week and/or the general market turns south. In this case, the stock will be put to the portfolio and this third lot will be added around at a net cost of $70.20. For all the reasons in the articles above I think that is a good entry price. Time will tell, but given my conviction about the stock this scenario does not seem overly risky for a worse case outcome.

2. The stock will trade up slightly or more over the next month. In this case we will cover this option for a 2-3% gain while enjoying the profits gained by the already owned two lots.

FYI, the stock did end up .26% to $72.79 on the day... in a down market.

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