2 Defense Stocks With Cheap Options

NOC and LMT are trading near recent peaks, and implied volatilities are low

Sep 18, 2019 at 11:50 AM
facebook X logo linkedin


Defense stocks have been in focus this week, following weekend drone strikes against crude production facilities in Saudi Arabia prompting U.S. President Donald Trump to tweet about new sanctions on Iran -- which is behind the airstrikes, according to the White House. The bulk of this price action has been to the upside, with the SPDR S&P Aerospace & Defense (XAR) hitting a record high of $112.29 yesterday, last seen trading down 0.5% at $111.52.

Two XAR components that are worth watching are Northrop Grumman Corporation (NYSE:NOC) and Lockheed Martin Corporation (NYSE:LMT), both of which are trading near new highs while implied volatilities are at historical lows. This combination has been bullish for the defense stocks in the past, suggesting more upside could be in store for NOC and LMT.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been eight times in the past five years when NOC stock was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) ranked in the 20th annual percentile or lower -- as is Northrop Grumman's SVI of 22%.

One month after these previous signals, NOC stock was up 2.8%, with 63% of the returns positive. Another move of this magnitude would put the security near $384 -- above its Aug. 13 all-time peak at $377.34 -- based on its current perch at $374.14. The equity is already up 52.4% year-to-date, and recently took a sharp bounce off its rising 40-day moving average.

noc stock daily price chart on sept 18

Meanwhile, White's data shows eight times in the past five years where LMT was hovering within 2% of a new annual high while its SVI was so low. The shares were up 2.2%, on average, one month later, with three-quarters of the returns positive.

At last check, Lockheed Martin shares were down 0.3% at $393. Another 2.2% bounce would put LMT stock north of $400 for the first time ever, and north of yesterday's record peak at $399.96. The shares have already added 50% in 2019 thanks to steady support at its 40-day moving average, up 8% so far this quarter.

lmt stock daily price chart on sept 18

 

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI