Boeing Co (NYSE: BA ) has been stuck in a holding pattern the past few weeks, but it's the Dow Jones Industrials strongest performer in 2017. Off the price chart, Boeing sports overall bullish conditions that should lift BA stock higher and very supportive of a bullish, modified spread.
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Since surging higher by roughly 9% and extending its blue-chip technical leadership on the heels of last month's earnings report, BA stock has been quietly digesting those hefty price gains.
The convincingly bullish reaction was backed by a "close to perfect" second-quarter earnings report, according to analysts at Vertical Research Partners.
Supporting the bullish point of view, Boeing's significant cash flow beat was the most important positive in a report that also featured a solid earnings surprise, flawless execution and a sunny profit forecast from Boeing management.
Of course, as any market watcher can tell you, forecasts have been known to change and not always for the better. Pragmatically too, as Boeing killed it with earnings. Now the question is, could the risk of owning BA stock outweigh the reward?
BA Stock Weekly Chart
Click to Enlarge The last time I discussed the technical picture on BA stock on July 18, conditions warranted a "reduce and hold" for a previously bullish butterfly position tacking on nice size profits of $1.25 and a return in excess of 50%.
The concern was with shares of Boeing flying higher toward max profitability of $210 well-ahead of schedule, an overbought near-term condition would force a quick grounding and loss of open profits.
We were correct in recommending peeling off risk and booking partial profits, but completely wrong on BA stock's next move. Shares continued to rally strongly from a tight base pattern with investors imbued by the company's earnings topper.
What's next for the Dow's best-performing constituent?
Personally and despite the similarities of BA being overbought near-term; I'm emboldened by BA's constructive price behavior since its earnings-driven momentum spike. Also, the current third base isn't technically-extended.
Count resets following corrections like BA's in 2016 generally concern themselves with weekly consolidations at or above the fourth base as the higher counts are more prone to failure.
BA Stock Bullishly-Targeted Butterfly
Click to Enlarge Reviewing BA stock's options board, one favored spread is a modified and bullish long call butterfly. Specifically and with shares at $238.74, the Oct $245/$255/$260 for $2.15 offers a nice blend of greatly reduced and limited risk, as well as healthy potential profits.
If Boeing shares fail to lift higher and into the framework of the butterfly, the trader ultimately forfeits the debit at expiration. However, the risk is contained to less than 1% of BA stock and a definite benefit of this spread.
However, the risk is contained to less than 1% of BA stock and a definite benefit of this spread.
Profitability for this BA position can begin building on a breakout with only the slightest of technical follow-through needed.
That, of course, is also attractive. Even better though, in case we're wrong again and Boeing's momentum reasserts itself in force; this modified fly retains $2.85 in profits due to the varied width construction of the two embedded verticals.
Investment accounts under Christopher Tyler's management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual.For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.