Boeing Airlines (BA), despite the news of a large new contract last week, gapped higher and spent the remainder of Friday selling off to close below its resistance level. This type of price action signals that there are not enough buyers, even with the good news, to support current prices.
Likely, investors who got long Friday will begin to dump shares throughout the weak as price action continues sideways to down.
The impact could be increased selling pressure as momentum builds to the downside. The ability to put on a cheap March expiration debit spread, combined with the fact that the market continues to be shake easily, further combined with the recent spike in oil prices, makes this a cheap, attractive setup.
Worst case for this new position is the market continues to trend higher and the other long positions in the portfolio do well. Best case, equities sell off and this position nets a 400 percent return and offsets losses in the longs.
Either way, we continue to add debit spreads to the account as options remain cheap. This is simply not a selling environment for the most part right now.
Trade Idea:
BUY +4 VERTICAL BA 100 MAR 11 70/67.5 PUT @.46 LMT
Trade Details:
Type: Bear Put Spread
Expiration Month: March
Breakeven Level(s): $69.54
Maximum Gains: $816
Profit Taking Level: $350
Maximum Loss(es): -$184
Stop Loss: -$125
