Lockheed Martin Options Traders Double Their Money in July Surge

Lockheed Martin was setting up perfectly for a bullish options trade

Jul 31, 2017 at 2:31 PM
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Subscribers to Schaeffer's Players service recently enjoyed a 102% profit thanks to Lockheed Martin Corporation (NYSE:LMT) July 275 calls. Below, we'll explain why we were bullish on LMT and how the options trade unfolded. 

We recommended Lockheed Martin calls back on June 13. At the time, the defense stock was sporting an impressive 16% lead on a year-over-year basis, finding recent support atop its 50-day moving average. In fact, the shares had just taken out previous resistance at the $275 level, signaling not only underlying technical strength, but also that a potential layer of technical support was in place. 

Meanwhile, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) revealed heavy skepticism from options traders, with put buying outpacing call buying in the two weeks prior. The stock's 10-day put/call volume ratio of 1.30 ranked in the 72nd annual percentile, showing this type of put-skew was unusual. An unwinding of these bearish positions could help the shares on the chart. 

After breaking through the aforementioned $275 level, short sellers began targeting Lockheed Martin stock. In the two reporting periods before our recommendation, short interest rose by 16%. This meant a short-squeeze situation could fuel addition upside for LMT. 

A little more than two weeks after our recommendation, Lockheed Martin took a sharp bounce off the 50-day moving average, and the shares rallied into record-high territory. Finally, on July 21, we closed our position, allowing options traders to more than double their money in just over a month. 

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