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Options Bears Blast Lockheed Martin Stock After Acquisition

The equity already sports a 10% year-to-date deficit

Digital Content Manager
Dec 21, 2020 at 10:26 AM
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The shares of Lockheed Martin Corporation (NYSE:LMT) are down 1.3% at $353.55 at last check, after the company agreed to buy U.S. rocket engine manufacturer Aerojet Rocketdyne (AJRD) for $4.4 billion. The deal, which is expected to close in the second half of 2021, translates to $56 per share, or a 33% premium to AJRD's Friday close. Adding insult to injury is a new COVID-19 strain, which is creating broad-market headwinds.

On the charts, Lockheed Martin stock has experienced its fair share of volatility over the past year. Prior to the pandemic, the security hit a Feb. 11, all-time-high of $442.53, but it was nearly cut in half about a month later for a March 23, annual low of $266.11. And while the stock made two solid rally attempts in April and June, shares have struggled with overhead pressure at the $380 level in the past three months. Year-to-date, LMT Is down 10%. 

Analysts remain optimistic toward the equity, with nine of the 12 in question sporting a "strong buy" rating. Plus, the stock's 12-month consensus price target of $436 is a whopping 24.4% premium to its current perch. 

However, the options pits paint a not-so-optimistic picture. In just the first half hour of trading, over 1,800 puts have crossed the tape, or three times what is typically seen at this point. Most popular is the weekly 12/31 320-strike put, followed closely by the 12/24 347.50-strike put, with new positions currently being opened at both. 

Now could be an opportune time to take advantage of the security's next move with options. The stock's Schaeffer's Volatility Index (SVI) of 23% sits in the extremely low 10th percentile of its annual range. This means LMT currently sports attractively priced premiums.


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