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Boeing Option Activity Takes Off

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BA traders are picking up short-term calls and long-term puts.

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Blue-chip bigwig The Boeing Company (NYSE:BA) continues to make headlines, attracting a wave of attention in the options arena. Around midday, the security has already seen roughly 6,300 calls and 5,200 puts change hands, far surpassing its average intraday volume of around 5,300 calls and 4,500 puts.

On the bulls' side, speculators are flocking to the January 2013 77.50-strike call, which has seen about 1,300 contracts cross the tape. The majority of the calls traded at the ask price, and implied volatility (IV) was last seen 3 percentage points higher, pointing to buy-to-open volume.

By buying the calls to open, the traders are hoping BA can climb back atop the $77.50 level by the closing bell on Friday, when January-dated options expire. More specifically, the calls changed hands at a volume-weighted average price (VWAP) of $0.22, meaning the buyers will profit if BA topples the $77.72 level (strike plus VWAP) by the end of the week. At the stock's current share price, it would take a 2.3% rally for the call holders to reap a reward.

On the bears' side, speculators have honed in on the August 75 put, which has seen close to 800 contracts change hands. Again, nearly all of the puts crossed at the ask price, and IV is on the rise, suggesting speculators are buying the puts to open.

By purchasing the puts at a VWAP of $5.65, the buyers expect BA to retreat beneath the $69.35 level (strike minus VWAP) within the next several months. However, even if BA remains north of $75 throughout the options' lifetime, the most the buyers can lose is the initial premium paid for the puts.

From a broader sentiment standpoint, bearish bets have been picking up steam amid Boeing's recent Dreamliner drama. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.66 registers in the 82nd percentile of its annual range. Or, in simpler terms, option buyers have picked up BA puts over calls at a faster-than-usual clip during the past couple of weeks.

As a result, the equity's Schaeffer's put/call open interest ratio (SOIR) now stands at 1.07 -- just 4 percentage points from a 12-month acme. In other words, short-term options players have rarely been more put-heavy during the past year.

In late-morning trading, the shares of BA are bucking the broad-market trend lower, adding 1.1% despite escalating concerns about the new Dreamliner 787. Specifically, Japan's Ministry of Land and Transportation launched an investigation into a Japan Airlines (PINK:JALFQ)-owned 787 that had two fuel leaks in just a few days Last week, US authorities began their own review of the aircraft, following incidents including a battery fire, cracked cockpit window, and wiring problems, to name a few.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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