Lockheed Martin (LMT)

We have some South Korean news this morning about escalation of tensions between North and South Korea.  This might be the reason for S&P giving back all of its earlier gains.  On the other hand, whether it is this news or renewed chatter of F-35 aircrafts (see Credit Suisse note below), traders are betting heavy in front month way out-of-money call options.  


As of this writing LMT April $90 calls trade over 12,000 contracts against open interest of only 505.  Calls show 98% bought on the offer with three large blocks (3298, 2463 and 2111) coming in for $0.15 and $0.20.  Here is the note from Credit Suisse:



"Well-Attended Event: As expected, F-35 was the key attraction at yesterday’s well-attended visit to LMT’s Ft. Worth, Texas facility, not b/c we toured the final assembly line, but due to DoD’s February restructuring of the program on cost overruns and development delays. While mgmt presentations clearly highlighted LMT’s ongoing success on its other major Aeronautics programs (F-22, C130, C5, F-16) and the growth in the sustainment (maintenance & mod) biz, Q&A focused on F-35 contract structure & timing.

Mgmt’s Optimism Meets Expectations: Mgmt remains confident that F-35 is back on track (after an admitted 6 mth delay) and believes it can actually beat government cost estimates on SDD (where the two sides disagree by ~$2B, as it still believes GAO/JET estimates rely on old data). LMT hopes to exceed some milestones in an attempt to win back six aircraft DoD recently deferred from the original program of record for GFY10 (to 48 from the current 42)."


Fundamentally, the stock is fairly valued trading at 10x forward earnings and 8.5x cash flow.  Technically, the stock has been grinding against long-term resistance that lies just above at $87.  A break above $87 could take take the stock to pre-Lehman period at $100.

Given the unusual activity, I am buying straight call options:

- Buy to open June $90 calls for $1.10.

Just filled the order.  Small position for me given its far out of money.  But I might add more if the stock breaks above $87 on volume.

Good luck!