Wednesday, December 26, 2012

Lockheed Martin (LMT) - Vol Reaches New Annual High; Fiscal Cliff Related?

LMT is trading $92.24, down 0.6% with IV30™ up 10.9%. The LIVEVOL® Pro Summary is below.


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Lockheed Martin Corporation is a global security and aerospace company principally engaged in the research, design, development, manufacture, integration, and sustainment of technology systems and products. The Company also provides a range of management, engineering, technical, scientific, logistic, and information services.

I last wrote about LMT in Nov as a broader piece of the defense sector. You can read that post here:
Defense Sector Risk Rises, Vol Correlations Rise, Election Looms Large

I've included the Symbol Summary from that prior article below as a reference.

I found LMT today stock using the real-time custom scan that hunts for elevated vols. Today it has breached an annual high in the implied.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 30
IV30™ Percentile GTE 80
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is elevated to its own annual history (at least in the 80th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The LMT one-year Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

One the stock side we can see a nice y-o-y return, as this was an $81.32 stock a year ago. The 52 wk range in LMT is [$75.45, $94.74], so the stock is close to that annual high.

But ultimately, this is a vol note. I have included the IV30™ one-year chart in isolation, below.

We can see the that with the spike today the implied has now hit an annual high. In the prior (pre-election) note listed above, I discussed the risk embedded in these companies. What's odd is, the election is over, but the vol is even higher now. This feels very fiscal cliff / budget related. While LMT does have earnings due out either at the end of this expiry or in the beginning of next, the elevated implied feels like it's due to something "else."

Finally, let's look to the Options Tab (below).

Across the top we can see the monthly vols are priced to 23.14% and 22.32% for Jan and Feb, respectively. That Feb expiry earnings mark is just a projection and based on the vols for the front two months, it feels like the date is rather ambiguous. If not, then whatever news is due out in this expiry trumps earnings and has pushed vol to a new annual high. If this is fiscal cliff related watch for climbing vol and then a potential vol crush after the news.

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