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Airline and Aviation expected moves and ways to play in Boeing - BA, LUV, JETS, AAL, UAL
3 min read

Airline and Aviation expected moves and ways to play in Boeing - BA, LUV, JETS, AAL, UAL

Airline and Aviation expected moves and ways to play in Boeing - BA, LUV, JETS, AAL, UAL

Overview

  • Airline and aviation stocks have been on a tear since the Warren Buffett bottom.
  • The etf JETS is up ~70% in the past 3 weeks
  • Checking in on a few of the names and looking at some trades in Boeing (BA)

The Set-up

Let's check in to see some 1 month expected moves for some of the names in the group, starting with the JETS etf, from OptionsAI technology:

Here's United (UAL) 1 month

Southwest (LUV):

American (AAL):

And Boeing (BA):

Ways to Play

Boeing has been a fascinating stock to try to gauge investor sentiment on the global economy in the time of Covid. It was $340 before selling off to below $90 in March and has now recovered to $230. It is up more than $70 in the past week alone.

That puts its expected move into some context as the options market is only pricing in about $35 of movement in either direction over the next month.

In fact, if it were to make a similar squeeze higher, to $300, the options market isn't pricing that for another 6 months:

In other words, options are doing a lousy job of pricing these stocks right now.

IF one were to play for a significant squeeze higher from here, I think that mis-priced volatility can be taken advantage of. Here's a price target for $280 in July from OptionsAI and a call spread beyond the expected move:

That is pretty great probability of profit for a trade that is $50 wide with that sort of risk/reward. Speaking of the risk/reward, it greatly benefits from the skew in upside calls (people are buying far out of the money calls, driving up their volatility/prices). You can see that skew on the chart here on OptionsAI, note the probability difference between these two targets, both on the expected move. First bullish:

Versus the bearish:

It's a similar move in either direction, but vastly different probabilities assigned by the options market (the delta of OTM calls vs OTM puts)

So what does that mean if one wants to fade this ridiculous rally? It means spreads aren't getting the same risk/reward lower as they are higher because the put sale leg on the spread isn't as pumped. For instance, here's a bearish target in July, the 230/200 put spread:

Not nearly as good risk/reward but it is what it is if one is bearish, you have to take what the options market gives you. In this case it's rewarding debit spreads to the upside and punishing those to the downside. Of course none of that matters if you don't get the direction right to begin with.

But don't buy OTM calls in a stock like Boeing, sell them versus ATM options and take what the market is giving you.

See a part of OptionsAI technology with your own price target and demo trades in AAPL HERE

Previously:

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