Boeing a Teflon Stock

NEW YORK (TheStreet) -- Investor concern over fallout from the Boeing (BA)crash in San Francisco can rest easy. Early reports indicate pilot error as the most likely cause.According to reports, Lee Kang-Kuk, the pilot in charge, is one of the most junior pilots for South Korean airline Asiana.

The 777 is Boeing's first fly-by-wire using computer controls and has flown since United Continental Holdings ( UAL)took the first delivery in 1995. Over 98% of the more than 1,000 777s continue in service. The 777s ranks as one of the safest aircraft models in service. Three of the top five safest jets you can fly are produced by Boeing.

The timing isn't the best for Boeing after the Dreamliner battery issues, but investors should consider Asiana-induced share weakness as temporary and not a catalyst to sell. After Boeing's successful navigation through the worry of Dreamliner delays, the company and its stock continue to soar higher.

Boeing has announced orders for the latest Dreamliner addition, the 787-10, and the company remains on schedule to arrive or exceed estimated profit targets. Boeing reports quarterly earnings on July 24.

Analysts expect a profit of $1.56 per share, an increase of 29 cents from the corresponding period last year. Boeing's one-year price target is $114.17 for an earnings multiple near 15.

BA Revenue Per Share TTM Chart BA Revenue Per Share TTM data by YCharts

Still, investors may wish to take some gains off the table. Boeing's shares have increased over 40% from this time last year and achieved a 52-week high recently. The weekly stock chart is quite extended, and shareholders should anticipate price consolidation in the near term.

An effective method of holding long-term positions while adjusting for short-term turbulence is through options. Selling covered calls decreases shareholder risk and volatility while allowing investors to receive quarterly dividends and avoid capital-gains taxes.

For example, by selling a September $105 strike call at $3.50, an investor is eligible for the next 48.5 cent dividend and reduces any unexpected drop in price by 3%.

If Boeing continues higher, and on expiration day the shares are trading above $105, simply buy the call option to close out the option trade and rollover to the next appropriate strike and expiration combination. Rinse and repeat, while collecting "rent" in the process. Or let the shares go if another superior investment opportunity presents itself.

Your profits from share price appreciation fully hedges buying back the options you sold, even if the rollover doesn't. Options are also an excellent way to avoid the problems of timing an entry into Boeing. Instead of pulling your hair out trying to time the best price to buy Boeing shares, you can sell a put option instead.

For example, by selling a September $100 strike put option at $2.85, an investor will have a cost basis of only $97.15, a 5% savings compared with the buying the shares outright.

Selling a put has a lower risk than buying shares without a hedge, and if the shares remain near $100 on option expiration day, the put seller earns $2.85 in profits while others lose $3.80 based on a current price of $103.80.

Boeing remains strong after extensive news coverage and investors should remain optimistic.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.


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