How Large Option Traders Are Playing Boeing As Order Backlog Shrinks Further

Boeing Co's (NYSE:BA) order backlog continues to shrink on a monthly basis.

A flurry of large Boeing option trades have been mixed in nature this week as investors struggle to determine whether or not Boeing can right the ship in the coming months.

The Boeing Trades: On Tuesday morning, Benzinga Pro subscribers received 16 option alerts related to unusually large trades of Boeing Airlines options. Here are a handful of the biggest:

• At 10:31 a.m., a trader bought 600 Boeing call options with a $160 strike price expiring on Nov. 20 near the ask price at $13.621. The trade represented a $869,019 bullish bet.
• At 11:35 a.m., a trader bought 2,000 Boeing call options with a $160 strike price expiring on Nov. 20 at the ask price of $12.651. The trade represented a more than $2.5 million bullish bet.
• Less than a minute later, a trader bought 2,000 Boeing put options with a $160 strike price expiring on Nov. 20 at the ask price of $17.40. The trade represented a more than $3.4 million bearish bet.
• At 12:46 p.m, a trader sold 621 Boeing put options with a $150 strike price expiring on Jan. 15, 2021 near the bid price at $16.554. The trade represented a more than $1 million bullish bet.

Of the 16 total large Boeing option trades on Tuesday morning, eight were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Seven trades represented calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish.

One trade was executed near the midpoint of the bid-ask spread, a price typically considered neutral.

Why It's Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest Boeing trades, they could potentially represent an institutional hedge.

Uncertainty Ahead: Boeing said it delivered 13 total planes in August. Adding those deliveries to its 20 cancellations and a downward accounting revision of 84 planes, Boeing’s backlog dropped by 109 planes in August to just 4,387. Boeing’s backlog is now down from 4,774 planes in May.

Boeing shares are now down 52.3% year to date, but up 47% since the market bottomed on March 23.

With the fate of the 737 MAX still up in the air for now, option traders don’t seem to know what to make of Boeing’s near-term outlook. But the two 2,000-contract trades that took place at 11:35 appear to be a classic option straddle.

A straddle is a common option trading strategy in which a trader buys an equal number of calls and puts for the same stock and the same expiration date.

In this case, the trader bought nearly $6 million in Boeing Nov. 20 puts and calls, 2,000 puts and 2,000 calls. During a straddle trade, the direction isn’t important, but the trader is betting that the stock will move significantly in one direction or the other.

Benzinga’s Take: Boeing’s stock has rallied significantly in large part due to relief that the company will remain solvent in the near term. However, additional upside for the stock from here may be limited if a second wave of infections continues to hurt the air travel industry and Boeing keeps losing more orders than it is gaining.

Related Links:

Boeing And FAA Share Blame For Deadly 737 Max Crashes: Congressional Report

How To Read And Trade An Option Alert