Usually, when there’s smoke there’s fire and after a number of warning signals, the FAA (Federal Aviation Administration) stepped-in and grounded Boeing’s (BA, $74.31, down $0.03) 787 Dreamliners. The company must prove to the FAA that the lithium batteries they use in the aircraft are safe before they can resume operations in the U.S. There are only 6 planes that operate here in the States by the publicity will be a stinger and other carriers are following suit as the overseas carriers usually follow the FAA’s recommendations.
The batteries have been an ongoing concern for a couple of weeks now as a number of planes have experienced smoke and battery-fire issues. This has raised serious concerns about the safety of the batteries and the planes.
We talk about “spotting” these types of situations in our trading manual “How to Trade Options on Momentum Stocks” and we listed and profiled some put options for Boeing on Wednesday morning. Unfortunately, they gapped up at the open yesterday and doubled so we didn’t want to chase. Instead, we wanted to see a close below $74 before going short but shares held this level into the close.
The February 72.50 puts (BA130216P00072500, $1.55, up $0.05) traded up to $2.22 at the open when shares started the session at $72.78 this morning. They traded down another dime before recovering but we have also been watching the February 70 puts (BA130216P00070000, $0.85, flat) which soared to $1.40 on the open after closing at 83 cents yesterday.
We will be patient as there could be a longer-term setup but we may have to look at the May put options which will allow more time for a breakdown. Wall Street will try to prop up one of its beloved Dow components but shares could dip below $70 over the next few months and test the 52-week low of $66.82 if Boeing doesn’t resolve this issue quickly.
The January options expire tomorrow and in recent years the Friday before Martin Luther King Day has favored the bears. The market will be closed on Monday to observe the holiday so the close this week will be important.
We will talk about levels to watch for in tomorrow’s update but today’s action is pushing resistance with the S&P at new multi-year highs. The index is up 9 points to 1,482.
The Dow is up 90 points to 13,601 while the Nasdaq is higher by 19 points to 3,136.
Subscribers, we have another NEW TRADE today so let’s get on it.