Thursday, April 14, 2011

Lockheed Martin (LMT) - Stock Tumbles, Calls Trade Ahead of Earnings

LMT is trading $77.50, down 1.0% with IV30™ up 9.4%. The LIVEVOL® Pro Summary is below.


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Lockheed Martin Corporation is a global security company engaged in the research, design, development, manufacture, integration, and sustainment of advanced technology systems and products.

The company has sold off of late on the new budget cuts -- specifically defense related. Earnings are due out in late Apr (the May option cycle), and the order flow today in May calls has been quite substantial.

The company has traded over 17,000 contracts on total daily average option volume of just 2,864. Calls have traded over 13,000x on a 3.2:1 ratio to puts. The May 80 calls have traded nearly 10,500x on what appears to be substantially buyer initiated action. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the May 80 calls are mostly opening (compare OI to trade size). When looking down the entire option chain, I don't see any OI larger than 3,217, so this volume is quite substantial for LMT.

The Skew Tab snap (below) illustrates the vols by strike by month.

Quite disappointingly, the skew hasn't changed shape except for maybe the tail end of the May upside (the 85 strike). I don't see a whole lot of skew spread opportunities on the board. Actually, I don't really see any...

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

A pretty cool chart on both sides. The stock headed up quite quickly in late 2010/early 2011, then found a quiet period. Of late it's dropped hard -- the stock was as high as $81.92 on 4-8-2011 (i.e. 6 days ago).

On the vol side, we can see that IV30™ tends to trade above both the short-term and long-term realized vols (might be a good idea to make a note of that).

Possible Trades to Analyze
The sentiment on the spec side seems to be that the sell off is over done. Purchasing the elevated earnings vol feels -- well, like purchasing elevated earnings vol. I dunno, maybe if IV stays above the HV's, this is a good front spread (vol sale) -- particularly the downside vol. For now, I don't have any specific trades to analyze.

This is trade analysis, not a recommendation.

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