Filed under: Major movement, Earnings reports, Good news, Industry, Boeing Co (BA), Lockheed Martin (LMT), Options, Technical Analysis
Lockheed Martin Corporation (NYSE: LMT) shares are trading higher just one day after the stock dropped on its earnings announcement. This morning, competitor Boeing (NYSE: BA) reported a first-quarter profit of $1.62 per share, beating analysts’ predictions of $1.13 per share. Boeing’s earnings might be soothing to investors who thought that yesterday’s LMT earnings might be a mirage. If you think that the stock won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on LMT.
After hitting a one-year low of $88.86 in August, the stock hit a one-year high of $113.74 in October. LMT opened this morning at $103.99. So far this day the stock has hit a low of $103.79 and a high of $108.00. As of 12:45, LMT is trading at $107.08, up $3.29 (3.1%). The chart for LMT looks bearish but improving, while S&P gives the stock a positive 4 STARS (out of 5) purchase rating.
For a bullish hedged play on this stock, I would think about a June bull-put credit spread below the $95 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just two months as long as LMT is above $95 at June expiration. Lockheed Martin would have to fall by more than 11% before we would start to lose money.
LMT hasn’t been below $95 since August and has shown support around $103 recently. This trade could be risky if defense spending starts to slow down, but even if that happens, this position could be protected by the support the stock might find from its 200- and 50- day moving averages, which are both currently around $103.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that might include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LMT or BA.
Entries (RSS)