The sands of time are down to precious few for what remains of the federal government's fiscal year. For most who have served in the armed forces, we know that this can be a tough time of year. Until the new funds show up, no money for training. No money for ammo. No money for a lot of stuff that service members need to proficiently do their jobs.
Every once in a blue moon, somebody finds themselves with a surplus, and the need to spend it before time runs out. Enter the United States Air Force, and its need for a fleet of new training jets to replace the aging T-38 jets previously manufactured by Northrop Grumman (NOC) .
As I had previously discussed with Real Money readers, the players here were Boeing (BA - Get Report) , which had teamed up with Saab versus Lockheed Martin (LMT - Get Report) , which had teamed up with Korea Aerospace Industries to produce the T-50 trainer already in use in South Korea.
Being that Lockheed Martin already had a trainer to build on and could deliver a next-generation model by 2022, my thought was that LMT was the favorite. I was wrong. Not financially. I am long both names, but this not where I thought the Air Force would go on this.
The U.S. Air Force last night selected the Boeing model. The contract is for a purchase of 351 aircraft at a value of up to $9.2 billion. It had been previously reported that this deal might be worth $16 billion, so the deal is huge, but much smaller than what had been hoped for by the supply side.
The Boeing offering is higher tech than the Lockheed Martin aircraft. A "from scratch" offering, I am actually surprised to see that this delivery, like LMT's, could come as soon as 2022. What probably attracted Air Force brass on this is the plane's versatility. At least on paper, the cockpit of the Boeing plane can mimic either an F-22 fighter or an F-35 fighter to the training pilot.
Going forward, I am sure that you noticed the size of the fiscal 2019 defense appropriations measure ($674 billion) passed by legislators this week.
Now, those of you who follow defense will start hearing the word "hypersonic" going forward. This is where high-tech weaponry is going to go. It's nearly indefensible. Estimates made by J.P. Morgan analysts this week are for spending on this space to reach $5 billion over the next few years, and "perhaps significantly more."
The players here will again be Lockheed Martin, Boeing, Action Alerts PLUS holding Raytheon (RTN - Get Report) , Northrop Grumman, and may even include the likes of Kratos Defense & Security Solutions (KTOS - Get Report) , and Aerojet Rocketdyne Holdings (AJRD - Get Report) .
One can quickly see on the chart above that Boeing has flat-lines at the top all year, yet each time the shares sell off they find support at a higher level than they did the last time. When a formation like this closes, there can often be a violent move. Does resistance crack on this attempt? Would you bet against Boeing in this environment?
Novice: Wait for a break above the $370 level, and one successful test of the level from above for entry of an equity long position.
Slightly Advanced: Purchase one BA $370 Oct. 26 call (implied value: $10.18), Sell (write) one BA $385 Oct. 26 call (implied value: $4.38). Basically, the trader is risking $5.80 for a potential net profit of up to $9.20.