Boeing (BA) Sells Off After Earnings

Investors bid down the share prices of The Boeing Company (BA) after it reported earnings for the fiscal fourth quarter. Boeing badly missed analyst expectations, reporting lower-than-expected numbers for earnings per share (EPS) and revenue. Analysts expected the company to announce a net loss per share of $0.28 and 17.1 billion in revenue—Boeing reported a net loss per share of $7.69 along with $14.8 billion in revenue. Boeing shares fell 4.8% the day after the aerospace giant reported earnings and fell an additional 2.3% the following day.

Boeing's commercial airplane deliveries rose 67.8% compared to the year-ago quarter yet were still below analysts' estimates. Demand for commercial airplanes is much more sensitive to economic conditions and could be considered a lagging indicator of demand since it is based on past rather than current orders for aircraft. This demand has been severely affected by the COVID-19 pandemic's impact on the airline industry.

Option traders appear to be positioning themselves for the earnings-based share price decline to continue. That's because, while recent trading volumes and the open interest favor call options over puts, implied volatility suggests that option traders are selling this greater number of upside calls while buying downside puts.

Over the past month, Boeing has underperformed the Industrial sector. In this time period, Boeing shares have fallen nearly 8%, while State Street's Industrial Sector ETF (XLI) has shed 6.2%. While the market as a whole has taken a turn to the downside since the beginning of 2022, XLI remains in the top half in terms of individual sector performance of the S&P 500 Index.

Sector Comparison Performance

While option trading and price action can provide insight into the sentiment of traders and investors on expectations for a company's performance in the near future, it's imperative to account for current stock performance in relation to its sector and the market as a whole while considering larger macro factors. Boeing is a member of the industrial sector, which has recently outperformed the market at large. The chart below depicts the recent performance of Boeing with XLI, State Street's S&P 500 Index ETF (SPY), iShares’ US Aerospace & Defense ETF (ITA), and several of Boeing's top competitors.

What's notable on this chart is that Boeing has underperformed its competitors, sector, and the wider market. Chart watchers will recognize that the Boeing share price has declined ahead of earnings, which could mean that the market was expecting a poor earnings result. Boeing's competitors—Lockheed Martin Corporation (LMT), Northrup Grumman Corporation (NOC), and Raytheon Technologies Corporation (RTX)—have all reported earnings for the quarter, and despite mixed results, each has outperformed Boeing recently.

It's notable that Boeing and Northrup Grumman fell sharply after reporting earnings, as each missed analyst expectations. COVID-19 continues to have a lingering effect on the industry, with rising costs, supply chain constraints, and labor issues. Defense stocks usually rally during geopolitical crises, and the U.S. government will allow European countries to send American-made weapons to Ukraine as Russian troops continue to ramp-up near Ukraine's border.

Recent Price Action

An analysis of recent option activity combined with technical analysis of share price movement can help chart watchers gain valuable insight into the overall sentiment toward Boeing stock. The chart below illustrates the recent price action for the Boeing share price as of Thursday, Jan. 27.

The chart depicts how the Boeing share price has recently reversed from an upward trend to the downside. Boeing stock was on the rise until mid-January, when the stock started its most recent downward trend, highlighted by the red arrow. In this time period, Boeing has dropped well below its 20-day moving average and has recently closed at the edge of an extreme low range as depicted by the technical studies on this chart.

The studies are formed by 20-day Keltner Channel indicators. These depict price levels that represent a multiple of the average true range (ATR) for the stock. This array helps to highlight the way the price has risen from the middle portion of this range to the upper bounds. This price move from Boeing shares implies that investors could have been losing confidence in Boeing as earnings approached, and the continuation of this trend could mean that Boeing's results did not convince investors to reverse course to the upside.

The chart also highlights the performance of Boeing stock after reporting earnings for the previous quarter. After reporting earnings in late-October, Boeing stock fell 1.5% the day of reporting earnings, then proceeded to rise to an extreme high of the range over the next month. This is important to consider if traders and investors are anticipating a similar post earnings move for Boeing stock for this quarter.

Volume Profile and Options Look

Price action, in a vacuum, theoretically can indicate the overall sentiment toward any particular stock. However, providing further context to this price action can paint a clearer picture, while illuminating key details for chart watchers. The chart below illustrates the recent price action of Boeing, in addition to a price-based volume pattern on the left-hand side.

The price-based volume pattern illustrates the prices where investors have bought and sold the shares previously. When volumes at a given price are scant, it implies that few, if any, investors have positions to defend at these levels. A significant amount of buying in the past often implies that traders and investors feel the need to defend their positions at those same prices by either buying more shares or at least not selling further.

It's notable on this chart that the Boeing share price recently closed above an area of thin volume that skews heavily to the buying side, highlighted by the green rectangle. Volume-wise, this area has recently been dominated with buying activity, which could make this area a zone of support for share prices. If this price area is breached to the downside past the lowest visible levels on this chart, it would represent the lowest Boeing share price since November 2020.

As the Boeing share price has remained in a downward trend, it appears that option traders are positioning themselves for this trend to continue in the near term. Recent trading volumes favor calls over puts nearly 2-to-1, and the open interest features 626,000 calls compared to 527,000 puts. While a first look at these figures appears bullish, a further analysis provides key details. 

For Feb. 18, the next monthly expiration date for options, the highest open interest is on the $240 calls, with 13,400. This option represents a 26% upside to the current share price of Boeing stock, a price level not seen since August 2021.

The option outlook becomes a bit clearer when considering implied volatility. There has been a significant increase of out-of-the-money calls and puts. However, while open interest for out-of-the-money calls is rising, implied volatility for these options is falling, indicating that traders are selling positions in these options. Conversely, open interest and implied volatility for out-of-the-money puts is rising, indicating that traders are buying positions in these options. This is an overall bearish outlook for the Boeing share price looking forward.

Wrapping Up

The share price of Boeing fell 4.8% after the company reported lackluster earnings for the quarter, as traders and investors bid down the stock. The stock is currently trading in an extreme low of the volatility range, and the share price has recently closed close to a support zone based on volume. Option traders seem to have been selling calls and buying puts, which could mean that option traders believe the current downward price trend will continue.