Thursday, December 1, 2011

Boeing - Takes Off - Mid course Correction to Options

Boeing (BA) was up about 4% today and about 15% this week to over $70.  Possible "explanations"  include rumors of a new large airplane order, favorable union relationship developments, etc.

CCI has not special insight to these moves, but while remaining bullish in Boeing, it seemed prudent to try to take advantage of this rapid upward move in some way.  So, we decided to cover the $50 Jan 13 put sold in late September to reduce the capital requirements and downside risk of the position.  The September transaction was documented in the last Boeing post here.    The  summary of that transaction was the Jan 13 $50 puts were sold to finance the purchase of Jan 13 $65 puts.

Overall the timing of that transaction was great.  The trade was put on for a $.50credit/contract, the call is currently up nearly $6.00/contract and the puts are in the money by about $3.50/contract.  That is a total of $10 gain/contract.  The worse case risk capital required was $50 so that is a nice 20% gain.   

With today's move, we considered just taking the profit and waiting for a pull back to re-add a lot.  However, we decided to keep the $65 Jan 13 call as platform to sell some shorter term covered calls against to try to milk some more profit from the trade.  So today we covered the Jan 13 $50 put and sold the Feb $75 call.  This cost us $1.21/contract of the profit made to-date.   If the stock continues to rise we would have better off just closing the lot, but we are anticipating that some sort of consolidation will occur in the next weeks and there will be an opportunity to harvest some gains from this covered call.

No comments:

Post a Comment