Boeing is currently below declining 50-day and 200-day moving averages and is showing very weak relative strength.
Traders who think Boeing stock will struggle to get back above the 50-day moving average could look at a bear call spread.
A bear call spread involves selling an out-of-the-money call and buying a further out-of-the-money call.
The strategy can be profitable if the stock trades lower, sideways and even if it trades slightly higher, as long as it stays below the short call at expiry.
An April-expiry bear call spread on Boeing stock using the 205-210 strike prices could be sold for around $0.70 late Monday.
Traders selling the spread would receive $70 in option premium. That's also the maximum possible gain. The maximum loss would be $430.
Max Profit If Boeing Closes Below 205
The spread will achieve the maximum profit if Boeing closes below 205 on April 19. In this case, the entire spread would expire worthless, allowing the trader to keep the $70 option premium.
The maximum loss will occur if BA closes above 210 on April 19, which would see the premium seller lose $430 on the trade.
While some option trades have the risk of unlimited losses, a bear call spread is a risk-defined strategy, and you always know the worst-case scenario in advance.
A stop loss could be set if Boeing trades above 200, or if the spread value rises from $0.70 to $1.40.
Because this is a bearish position, traders who think the stock could move higher from here should not enter this trade. The position starts with a delta of -7, meaning it is roughly equivalent to being short seven shares of Boeing.
Boeing Ranks Low In Its Group
According to the IBD Stock Checkup, Boeing stock is ranked No. 39 in its industry group. It has a Composite Rating of 39, an EPS Rating of 57 and a Relative Strength Rating of 17.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
